The importance of agreements for your business – especially nowOct 14, 2020
‘Troubled times’, ‘uncertain times’, ‘difficult times’. They have all become unfortunate staples of our conversations in the last 12 months. Whether it’s down to Brexit or the Coronavirus, uncertainty has become a big part of our daily conversations. Nevertheless, now seems the right time to deploy another one. The only thing that is certain, is uncertainty. When it comes to business, uncertainty can be incredibly damaging. And if you aren’t protected through up to date and appropriate agreements, this can make matters significantly worse.
It’s not always plain sailing
When times are good, parties usually have a good idea of what to eexpect from one another. And they’ll know what’s needed to make a success of things. Any problems or issues will be worked out easily and for the common good. But at the moment, none of us know what’s around the corner. For businesses not already badly affected, we can’t even be sure of how things will affect them. Unfortunately it’s at such times, or where the business is already suffering, that fingers start pointing. Business owners become more focused on their own position than the broader one. This is certainly not always the case and hardship can bring out the best in many people. But disputes are more likely when stress and pressure on the business are increased.
Bearing this in mind, now is a good time to consider whether you have suitable agreements in place. As a shareholder/partner in a business, the chance to resolve disputes before they erupt into full legal dispute is essential. While it’s always been impossible to plan for every eventuality, current circumstances are so unforeseen that the agreement you made some years ago (if you have made one) may no longer reflect the working relationship you have with your business partner.
Examples of potential areas of conflict
Perhaps one of you has taken a step back to let the other take the lead. Or perhaps one has stepped forward to take pressure off the other? Your agreement can reflect the extent of the time commitment each party has to put in to the business. It can list areas where decisions need joint agreement. And it could outline areas that may be left to the discretion of one or more of you.
Agreed remuneration or a preferential share of profits can also be provided for if appropriate.
Has one of you accelerated their retirement plans as they are not now enjoying their work-life-balance? Or have they deferred their plans due to a downturn in income? Your agreement should confirm what happens if one party wants to leave the business. Worse still, it should confirm what happens if one partner or shareholder dies while still involved in the business. A ‘mechanism’ will be set out to allow the continuing party to buy out the other. It will also establish a method for independently establishing the price. Otherwise shares could be sold to someone the continuing parties do not approve of or a dispute can arise as to how to value the leaving party’s interest. The price would also be payable in full upon the transfer unless credit terms are specified.
This could also include a fixed retirement plan for one party. It would set out a timescale and phased transition of ownership from one to another.
We’d be happy to discuss your agreement with you. If you don’t have one, we’ll explain how it could help you. Shareholders’ or Partnership agreements really are very important..
The same may be said for a business’ terms and conditions. Please see our previous article on this by clicking the link above. Business will often be done on a handshake or with a phone-call and little formality. While this carries risks even during good times, those risks are exacerbated by the current circumstances. With governmental restrictions and advice changing regularly, can you be sure you can meet obligations that you have taken on. Are you covered in your terms of business for such circumstances beyond anyone’s control?
Fix the roof before it rains
In the context of where we find ourselves right now, establishing clarity for the business is a prudent approach. It’s much easier – and normally far more cost effective – to establish clear ‘rules’ in advance than to sort it out after something has gone wrong. There are many things beyond a business’ control and no document will fix every problem. But putting your own business affairs in order can certainly help to manage the risks.
We’d be glad to talk to you more about the agreements you have, or those that you need in place. In the first instance, please contact Austin Blackburn from our Commercial team who will be happy to help you. You can call Austin on 01752 827125 or by email at [email protected].