Why a business prenup may be important for you

Why a business prenup may be important for you

When people set up a business with a partner, I often see one key thing that they did not do.  And that was having a business prenup, (often called a shareholder’s agreement) between the partners.

Often, a business prenup is considered a bit like a marriage prenup, with reactions such as why are we planning for failure.  On this basis, business partners often do not get a business prenup.

But here is a great example of why you should have a business prenup that has nothing to do with failure.

There were two partners selling Christmas trees on the northern beaches of Sydney.  Both were actively involved in the business.  One partner, moved their family to Queensland and could no longer be actively involved.

Now the partners had a problem. 

What would happen if the partner moving to QLD wanted to sell their share to someone the other original partner did not want to work with?

What about if the original partner wanted to buy the moving partner out, did the moving partner have to accept this and if so, what was the value?

There was no rules or guidelines in place, and this could end up in an ugly divorce, even though neither party planned it that way.

And there are lots of different other life choices that could impact your business partnership.  One partner gets married.  Has kids.  Moves away to support a sick relative.

And these are a great example why you should have a business prenup covering what happens should one partner wish to / have to leave.

The other issue that comes up from time to time is if there is difference between the partners about how the business is run.  The business prenup can set out how disputes are resolved.

 

If you want help to improve your your businesses chances thriving and surviving in these uncertain times contact me below.

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