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Start-up Counselling: Getting into (and out of) Bed with a Business Partner By Patrick Mc Ilhone, Scarfone Hawkins Law

Start-up Counselling: Getting into (and out of) Bed with a Business Partner By Patrick Mc Ilhone, Scarfone Hawkins Law

Like newfound love, it causes the feeling of butterflies in the stomach, the glorious feeling of finding someone who shares your life passion, the nervous excitement of a new adventure. Sometimes it takes a leap of faith to say those words of ultimate commitment that will change your life: “I do!..I do want to open a cat pedicure salon business with you.”

Jumping into any new business with a business partner is a huge commitment that deserves thoughtful consideration. Many business “couples” call or come into our office with what they think is a genius business idea (“it’s the Uber for cat pedicures!”), and with the ultimate trust that their business relationship will persevere for better, for worse, for richer, for poorer….sound familiar? This excitement often makes them want to throw caution to the wind and jump right into raising, borrowing, spending, and (most importantly) making money.

When I talk to budding business partners about their plan and relationship, it can feel a little like marriage counselling, and a little like planning for a divorce. It is great that these couples are so optimistic about their new business and relationship, but to give the relationship the best chance to survive long term (once the honeymoon phase is over), and to protect each person, we have to talk “pre-nup” – generally in the form of a shareholder agreement, joint venture agreement, or other form of business agreement depending on the circumstances.

While you can’t plan for every possibility, there are many events and circumstances that you can prepare for so that everyone knows where they stand. For a few examples: (a) what are the financial and “sweat” obligations of each person, (b) who gets to make which types of business decisions (e.g. spending, hiring, expanding into feline ear piercings), (c) what happens if one person dies, (d) what happens when one person wants to sell the business and one wants to keep at it, (e) what happens when one person stops pulling their weight or violates the agreed upon business terms.

When a business with multiple owners goes sour, in my experience the disgruntled person is not usually looking to let the other down softly with the “it’s not you, it’s me” routine. More often than not the “Dear John” letter is a threatening letter on a lawyer’s letterhead. When there are no rules/agreements in place, then the breakdown of the business relationship can be much like the breakdown of a marriage – where the only financial winners are the lawyers and accountants.

The lesson here:  Getting early legal advice, properly setting up the terms of a business relationship, and spending a few bucks at the outset can save a lot of time, money and heartache (though it may not protect you from the wrath of overly protective pet parents).

 Patrick Mc Ilhone is a corporate commercial lawyer with a soft spot for the entrepreneur and local business owner; with Hawkins LLP, One James Street South, 14th Floor Hamilton, Ontario

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