Things you should consider before going into business with others

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Many businesses are operated by 2 or more co-owners. We often speak with clients who are looking to go into business, are in business or are looking to exit a business with other people. Here are 16 essential issues that you should consider before going into business with another person or people.

  1. Structure. What is the existing or your desired structure? For example, company, partnership or trust or some hybrid combination.
  2. Equality. Will all owners have an equal share or do some owners have minority interests?
  3. Objectives. What are the practical objectives for your endeavour? For example: grow and sell; run until retirement; pay down debt etc. Of course the objectives may change over time, but deciding this before you start creates a record of your objectives at a particular time. It also helps to confirm that the people involved have the same vision for the future.
  4. Strategic thinking. Do you have a shared mission, purpose or values that will help guide your business? If not, it is worth considering this. If your co-owners have a different purpose or values, it could spell trouble for the future.
  5. Decision making. How will the owners make decisions. What issues will require consensus and where is a unilateral decision by one owner appropriate?
  6. Planning. Will you adopt a formal business planning and budgeting cycle?
  7. Owner commitments. What are your expectations of the owners? Are qualifications required - for example qualified accountant or licensed tradesperson. Will all the owners work in the business, and if so, what is the role and will the employment be full time?
  8. Meeting. How will you call and run owner meetings? Do you expect that owners attend meetings outside normal business hours and if so how often.
  9. Funding. Do you expect owners to provide funding?  If so, in what circumstances and what are the rules / requirements around that? What happens if an owner is not in a position to contribute?
  10. Remuneration. Will you and the other owners be remunerated by a salary? If so, how will it be determined? Does it need to be equal? If you adopt a company structure, will directors be paid a fee and what is the dividend policy? Is all profit paid out as a dividend or will the company retain some profit for future expenses?
  11. Management. Will you have a board of directors or management group? For a partnership, will all partners have an equal say?
  12. New owners. Do you expect to invite new owners into the business in the future? How will you make sure it’s only the right people that come on board.
  13. Selling your interests in the business. Will you need permission from your co-owners to sell your interests? Could a third party buy in or is it only practical to sell to other owners. How will you calculate the value of your interest?
  14. Forcing an exit. Are there circumstances where a co-owner should be forced to sell their interests in the business? For example, bankruptcy, breaching employment obligations, losing qualifications or failing to meet the obligations to other owners. What is the process if that happens?
  15. Restraint. Would it be damaging to your business if a co-owner left and set up a competing business next door? If so a restraint may be appropriate.
  16. Dispute resolution. How will you resolve disputes or difficult decisions between owners.  

For more information about owners agreements, get in touch with the team today.