Are you in a Business Partnership?
Here are some scary scenarios you won’t have thought of.
Your partner comes to you one day and says:
We need to expand to stay competitive. I’ve done the numbers and we each need to tip in
another $100,000 to fund the expansion. If you don’t want to do that, then I’ll put it all in, but
I want to become a 75% shareholder. (Bombshell)!
or
Guess what? I’ve just leased another factory. It’s expensive, but it comes with all the gear we
need to chase the big contracts. (Bombshell)!
or
I’m sorry, but I just don’t want to do this anymore. I want you to buy me out. If you don’t
want to buy me out, I want to sell the business altogether so I can get my money out and go
and do something else. (Bombshell)!
Question: Do you have to just “go along” with any of these?
Not sure? Then read on……
No one goes into business with people they EXPECT to fight with. We’re sure YOU didn’t.
But as solicitors, we have 3 or 4 cases a year where a partner comes in to see us about some brewing dispute. Sometimes it’s a bombshell moment like the ones above. They just NEVER SAW IT COMING.
Sometimes it’s something less dramatic but just as worrying, like:
- “I manage the guys, and my partner does the admin. My partner’s wife does the books. But she keeps all the records on her computer at their house. I think they spend more money than I do. But if I ask for the bank statements, they say ‘don’t you trust us?’ and then nothing happens.” (Problem)
- “My partner hasn’t come into work for two weeks – she is just hanging out at home. But she says that because she owns half of the business, she can still take half the profit. She is taking money out of the bank every few days!!” (Problem)
- “My partner owns the factory we work out of and I’m fine with that. But a real estate agent told me that our factory would rent at about $80 per square meter. We’re paying more than double that!! My partner refuses to even talk about it.” (Problem)
- “I’m not happy with how the accounts are being kept. I don’t think I’m getting my fair share. But the company accountant is my partner’s personal accountant as well, but not mine. He always says he has to “check” with my partner before he gives me information. But he never comes back and actually gives it to me.” (Problem)
These things might sound familiar. We wouldn’t be surprised if they did – they are based on some of our actual cases. Stories like this are not uncommon. They are often the beginning of a very long, expensive battle in court.
The thing is……none of the people who came and told us about their bombshells or problems EVER BELIEVED they would have to face these issues. Not one of them. If they ever thought they might end up in our office talking about a partnership dispute, they would never have gone into that partnership in the first place – obviously.
We’re not saying people choose bad partners. It happens, but it’s not common. What is common is that things change. The business environment changes. There are divorces, illnesses or unknown financial stresses of a single partner. There’s also ignorance. All these things can AND DO AND WILL cause the unexpected to affect YOU.
Call us at Your LegalHQ today for a partnership health check. We’ll be able to show you how we can manage the risk of all these things to the advantage of all partners. It can be squared away completely in a few weeks!?
The number to book on is 08 9445 9200.
Every year, roughly 100 partnerships
have litigation start up between partners.
That means that every year, roughly 100 groups of people who thought they would never ever end up in Court with each other…… end up in Court with each other.
This is why partnerships end up in court.
Things change. It might be the business environment, ignorance of a partner, death, divorce, debt, illness or some other cause. But those things can put pressure on a partner and create a dispute where none existed, and you won’t see it coming.
WORSE, the Company Constitution, the Trust Deed, or the Partnership Act (which you think governs whatever type of business partnership you’ve set up), deal with any of these changes. None of them deal with any of the bombshells or problem moments we have discussed either, or anything similar.
So there are NO RULES to deal with any of these situations.
And when there are NO RULES, you normally need a very large amount of money, a spare 12 months, some lawyers and a Judge to sort out any dispute
RIGHT NOW, think of a bombshell or problem moment that your partner could drop. Thought of it? Good! We’re here to tell you that Constitutions, Trust Deeds or the Partnership Act don’t deal with it – it doesn’t matter what you thought of.
AND YET…..
The Partnership Act, a Constitution or a Trust Deed is probably all your business has.
(So you have NO RULES)
How can you manage this so that everyone is on the same page all the time? How do you make sure that when things change (and they will), the business doesn’t get ripped to pieces in the process?
Basically, you need a RULE BOOK.
You need something that sets out the rules in black and white so everyone knows that if “X” happens, then “Y” is how it gets dealt with. And course “Y” is something which is agreed between all the partners in advance, so there are no nasty surprises.
That rule book must:
- Make sure that if someone decides they want to get out, the partners left behind aren’t financially crippled by having to come up with quick cash to avoid a forced sale of the business;
- Protect the partnership from being committed to an agreement made by one partner that the others don’t want;
- Make sure that your agreement is required for those big decisions – the ones which carry big risk or involve major changes to the original plan;
- Set out a fair and equitable policy for distribution of profits – agreed by you- and which allows sufficient retention for working capital and payment out of enough so that the partners take a regular, agreed, benefit as well
- A procedure for dealing with any need for further funding without breaking the bank or needing to allow one partner to become the dominant owner because they are more cashed up;
- Set out a number of rules for other important situations.
BUT WAIT A MOMENT
These rules have to be your rules. Not someone else’s.
This is the difference between a contract and an agreement. If you buy a standard document off the internet, (assuming it’s properly written in the first place) then all you will have is a contract.
You need an Agreement. Why? Why not download a contract that’s “legal” and cheap? Well, here’s a little analogy.
You’re in a group of close friends. You have an argument with one of them and you’re angry and upset. But everyone in the group tells you to “let it go”. So you do. But not really. You didn’t like being forced. It wasn’t your choice. So you haven’t really let it go at all. That’s what having a “contract” is like. You feel you have the right to fight about things later because of lack of choice in the first place.
How about this…. the same thing happens. It’s not pleasant, but you work it out with the person you argued with. The group is just there. They say nothing. When the issue is resolved, you and your friend shake hands…. That’s an agreement. It’s DONE. And its not coming back later because you actually agreed.
In many cases, having a proper agreement
actually stops disputes
Not because everyone is legally bound (although they are). Not because anyone was forced.But simply because a few people took the time to work out what would be fair in their situation, looked each other in the eye, agreed, and signed.
Call us on 08 9445 9200 to get this important issue under control straight away.
You can make an agreement by sitting down with your partners and Your LegalHQ, and having a discussion about a number of critical issues, risks and possibilities specific to how your business operates.
At the end of the discussions, you and your partners will have an Agreement.
And THAT AGREEMENT (i.e. your agreement – not someone else’s) is what we write for you. And there’s advice through the process to make sure the agreement will really benefit you and isn’t full of holes.
Call Your LegalHQ today on 08 9445 9200 and tell our receptionist
you’d like to speak to Henry about what you’ve read on the
“partnership page” on our website.
When you meet with us you will learn how we can make sure:
- Your partnership has non-damaging solutions for bombshell situations
- The problem issues are properly regulated so they don’t arise
- Your business cannot be damaged by lack of agreement on something important
- Bad majority rules decisions can’t detrimentally affect YOU
- The chance of litigation in your partnership is greatly reduced
- A proper policy for payment of profits is established
- The departure of any partner for any reason is managed in a way that will save your business & your family from financial hardship
- All other important areas not regulated by your Constitution, Trust Deed or the Partnership Act are regulated by you and your partners.
Got no issues? Excellent. Now is the perfect time to call. When everyone is happy and everyone is getting on well, that is the time to document your legal relationship. It just makes sense.
Don’t make the MISTAKE of thinking that you don’t need to act because “everything is fine”.
That’s what the partners thought in every one of the 100 new partnership court cases that kick off every year