Prenuptials – the business version

4th April 2024, 4:39 pm

In turbulent times you may consider a merger with another business, taking on a partner, or an investor. While any of these alternatives has its merits, even in the best of times caution is due.

When still in the planning stages it is advisable to consider whether to do any of these at all. While the benefits are obvious – the ability to share the burden, save on salaries, improve cash-flow etc. – you should carefully choose who you are going to share your business future with. Things may look good in principle, and even preliminary discussions may go well but the landmines down the road are numerous.

In some cases, though, the benefits outweigh the risks, and a partnership is desirable but before finalising anything it is important to:

  1. Make sure your values, drives and goals are in sync. Having a partner that is after things that are completely different is a recipe to failure.
  2. As awkward as it may be, put down on paper some ground rules. These may include:
  • Who does what (an org-chart is advisable). It is impractical to get a consensus on every mundane detail, so someone needs to be in charge.
  • What constitutes the daily running of the business (where the org-chart applies) and what is a matter for a partners’ decision.
  • Who makes the final decision in case of a dispute (consider appointing an agreed outside mediator in case of an even number of partners).
  • What constitutes “fair contribution” to the business and what happens if any side fails to comply.
  • What happens when one side wants out.

It is obviously impossible to foresee all eventualities and this short article certainly doesn’t presume to do so. Therefore, it is best if the partners put some thought into this matter and add to the list.

Things tend to get even trickier when more than 2 partners are involved. In many cases such situations evolve into coalitions which makes the rules-formation even more critical.

Ideally, all the above will go into a formal agreement, prepared by a lawyer.

As written above, it is best to set the rules at the beginning, but it is never too late. Even if the business is already established and unless a seamless cooperation is omnipresent (and sometimes even then) it is never too late to put the current affairs to the side for a while and pen a list of rules for when they don’t.

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