Legal
Issue No. 28 - April/May 2006
Plan for a smooth exit
by Mr Henry Ringwood
It is hard work to build up capital in a business, but very easy to lose it!
Disputes about the rights and obligations of partners or shareholders departing from a business often have to be decided in Court, with huge legal fees incurred.
It makes sense to arrange your business dealings to minimise the chances of such a dispute arising.
When people discuss new business opportunities, the mood is usually one of optimism and excitement.
Potential business partners may be charming when they want either your expertise or your capital. But the charm can quickly fade if you want to leave the business.
How will you recoup your investment? What you have put into the business may far exceed what the remaining partner is prepared to pay for your share.
It can be amusing (if not downright distressing) to see how many people driving expensive cars and living in valuable homes claim to have no assets when it comes to taking responsibility for outstanding bank loans or obligations to creditors!
Any change in the ownership of a business has the potential to cause a dispute. What if one of the partners leaves the business, taking some of its best customers? What if you find yourself suddenly “expelled” from the partnership?
Money, especially large amounts of it, does seem to distort the ethics of some people. Where business has been done “on a handshake”, a falling-out can be very acrimonious because of the loss of the perceived trusting relationship between the parties. Where there is no adequate written agreement, the outcome depends on which partner’s word is accepted in evidence. Often there are no accurate accounting records to show the contribution that each party has made.
Investing an appropriate degree of time and effort at the outset of a business venture and getting good legal and accounting advice can reduce the potential for difficulty in this area.
What do you need to do?<...
