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Prenuptials - the business version

Updated: Apr 18




At times, business owners 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.

 

While still in the planning stages it is advisable to consider whether to take on a or investment partner at all. While the benefits are obvious - the ability to share the burden, save on salaries, improve cash-flow etc. - one should carefully choose who they are going to share their 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 concensus on every mundane detail so someone needs to be incharge.

  • 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 only makes the rules-formation even more critical.


Ideally, all of 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 a rainy day.


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