Business & Economy
Your business needs you!
July 13, 2016
For many entrepreneurs, setting up a business means financial independence, creativity and individuality – a powerful vision into which many readily plough their time, skills and hard-earned money. But with so much at stake, why do so many start-up businesses fail to seek legal advice and lay the foundations for success? North East Times asks Butterworths Solicitors commercial partner, John Cook
Why are so many business owners apathetic when it comes to seeking advice?
Many businesses – especially SMEs – are counting every penny when they start out. At Butterworths Solicitors, our experience is that business owners have a misconception that lawyers will be unnecessarily obstructive or extremely expensive. In reality, the work that your lawyer will do at the outset could be invaluable if there’s a problem in the future, especially in terms of financials.
When it comes to cost, a properly drafted shareholders or partnership agreement isn’t really that expensive. Plus, a good advisor can add in a ten-minute conversation what you could get from hours of research on the internet, so it really is worth the investment.
Why is seeking advice at the outset crucial?
Your business partner has been your best friend for years so there couldn’t be a problem, right? Working together in a business environment brings new pressures and new challenges which will test any relationship. At Butterworths Solicitors, we have so many clients who tell us they went into an agreement on trust. The majority of disputes could have been easily avoided with the right documentation in place. A partnership agreement or a shareholder agreement can determine decision making power, what happens when someone leaves, what happens when new capital is needed, and effectively create the rulebook for the business. The cost of creating a formal partnership or shareholder agreement is minimal when you consider the cost of sorting out a dispute.
What are you asked for the most?
Increasingly, we are seeing more businesses think about employee retention and incentivising their staff through share option schemes. Businesses are certainly more conservative then they used to be in terms of giving salary increases so share options (if properly introduced) work as an attractive middle ground to sharing some of the risk and reward.
What are the most common reasons a business seeks advice on at a later date?
In most cases, we are approached by business owners after the event, when something has inevitably gone wrong and there is a dispute. Quite often, the dispute will relate to a decision made by one party which has already impacted on, or will impact on the business. We also see some conflict where parties have other interests and there is a disproportionate amount of effort being made by one of the partners or directors.
Another problem we see rearing its head a lot is investor influence. Again, it’s important to get the rules right at the outset and document how key decisions are to be reached. This will ensure that the business is run as smoothly as possible.
If you could give one piece of advice to a start-up business, what would it be?
I need to cheat and have two! Firstly, don’t assume that if you know the person you are going into business with, your business relationship will be the same as your personal one; it rarely is. Secondly, get the right advice and document your business rules via an agreement that suits the structure of your business, which a lawyer skilled in this area will be able to prepare. It will take less time than you think and could save you money down the line.