0

I am about to start a company with a partner who is also an old friend. We are both going to invest money and work in equal parts. While the trust is total, we are going to write an agreement to ensure that we are both on the same page when we start and maximize the chances that no matter what happens our friendship remains intact.

In your experience, what are the issues that, if not effectively clarified, are more likely to cause a conflict of interest between partners?

3
  • "In your experience, what are the issues that, if not effectively clarified, are more likely to cause a conflict of interest between partners?" - Honestly, everything not indicated in the contract. Which is the reason the contract should have a clause, that allows it to be easily modified and changed as the business needs of the company change.
    – Donald
    Jun 29, 2022 at 14:06
  • I think it's going to depend a lot on the nature of the business. Will you have to purchase equipment? Materials? Will you end up with a big customer contact database that one of you would end up with if the business itself fails?
    – Theodore
    Jun 29, 2022 at 15:32
  • If possible and if you have a little money, you can get a business lawyer to explain and write a brief contract for both of you. This will clear up lots of details and help you both down the road when business conflicts may rise between business partners. Jun 29, 2022 at 19:15

4 Answers 4

1

It's hard to be too specific without knowing the details, but some key things to think about are:

  • What's the split in ownership? 50/50 sounds nice in theory, but in reality means that no one is in charge and can paralyse you if you disagree on something.
  • When you disagree on something, how do you solve that (especially if it's 50/50)?
  • What if you really disagree, to the point you decide you can't work together any more?
  • Who is responsible for doing what?
  • What is the business plan? You need to both be on the same page about where the business is going, and where you both want to be in 1/5/10 years.
  • What's your exit strategy?
  • How much are you both paid? Salaries, dividends, etc? Who decides this?
  • What if they want to leave the business? Will they just keep their shares and keep earning dividends without doing any work? Are they forced to sell to you? What if you can't afford to buy them out?
  • What if they want to sell their shares to someone else?
  • What if someone offers to invest or buy you both out? How will you decide whether to accept?
  • What happens if one of you dies?
  • What happens if things aren't going well financially? Does the company fail? Do you both lend it money? How does that get repaid?

This is really somewhere where you should agree on the key areas (including the points above), and then get a lawyer to write a proper contract that is legally sound.

1
  • 1
    Another question to ask is do you really want the business form to be a partnership and not something else such as a corporation? Limited liability helps keep the debtor hell hounds at bay. Another thing to think about is tax. Capital gains etc. You need to read articles about these sorts of things and think about them before you go to a lawyer (you will need him no matter what) so you don't waste time and money when he asks you questions. Make sure you and your friend really agree on these things, at least it can help keep your friendship alive if the business goes bad.
    – C'est Moi
    Jun 29, 2022 at 18:03
4

Projects "between friends" are usually between people without much experience in business or contracts. So they tend to have agreements like "we share the money 50/50". Question is: what money is "profit" and what should be reinvested? What spendings are covered before sharing the leftovers and which should be payed by the person(buying a new computer "for work"? Gas? Rent for your work-room?)? What if the work is distributed unevenly (voluntary or not)? What if the participants feel like the contributions have different worth ("You only did some talking, but all of what we sell is programmed by me!")? What if someone wants or needs to leave early? Who decides if there is a disagreement about the projects future?

Not hiring a layer to draft a contract may be the "cover-all" fault that can cover all of the above.

0

I have done this; started up a company with a long-time friend, each with a 50% shareholding, and no legal agreement - I am a firm believer in starting a company with minimal debts.

After a while, things did go wrong, because we weren't making any money, and we started pulling in different directions; our shared vision just fell apart. In the end, I backed out (taking a small financial hit) and he kept on, until the company dwindled into nothingness.

The question is: to what extent would the situation have been saved, if we had a water-tight legal agreement, as others have described? In reality, we would still end up in the same place, but quite a bit poorer, due to the lawyer's fees.

So, from my perspective, I wouldn't recommend putting any more legal agreements in place, apart from those necessary to manage the company. Either you'll be successful, in which case you have sufficient money sloshing around to do what you want, or you'll be unsuccessful, in which case you'll be arguing over what is going wrong, and how to fix it - and hiring lawyers won't help you with that problem.

Good luck starting a new company; it is a really exciting thing to do!

0

Approach it like you aren't friends

This advice would include startng a business with a family member. Everything should be in writing. Money makes people do things that a "Friend" wouldn't, and when the money comes first, you need to be protected.

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .