You met at one of those pub quiz nights. She was amazed by your detailed knowledge of new wave post-punk pop circa 1982. You were in awe of her ability to name every planet in our solar system – and their moons. Your mutual admiration led to a conversation that somehow gave birth to a business idea that would marry your fabulous public relations skills with her IT ingenuity and now, five months later (feels like forever!) you are besties and you’ve already reserved your business name, you’ve got a business plan ready to roll (ok, it’s rolling already! You can’t stop this good thing!) and you just need me make it legal with a partnership agreement to protect you both.
No, no you don’t.
First, I’m not talking to this astronomy nerd. Not because I don’t like her and her spectrum-ish skills. I love the stars and moon and stuff. Hell, Neptune’s third moon is called Despina.
I’m not talking to her because you called me. You’re my client. She’s not. You and she have different interests. You’re right – you and she need to ‘make things legal’. You need to work out the type and terms of your business relationship. It’s possible that what you want, and what might be the best fit and right for you, might be different for what works for her. So you will need to get different lawyers to help you work things out together.
You need to work out what business structure you’re going to use, for example, a partnership (generally, please no – that’s for another time but if you’re desperate for an explanation, just get in touch), a unit trust, a company… maybe you need a family trust too… you’ve got options. It might be even as simple as you setting up as a sole trader and employing your new friend.
If you’re going to employ her, you’ll need a nice tight employment agreement, protecting your intellectual property and other confidential information of your business. If you’re going to form a company with her, you’ll need to work out who the shareholders will be (that is, the owners – probably the both of you, but maybe or maybe not in equal shares, and possibly not even in your own names or maybe as trustees of a trust), who the directors will be (the people calling the shots for the most part – keeping in mind that the shareholders have some powers in this respect too), and how the company might grow and provide for new shareholders or allow the existing shareholders to buy more shares, and how the company might appoint more directors.
You also need to work out what is going to happen if and when you break up. I know, you’re never going to break up. But humour me. A good shareholders agreement will spell out what will happen if a shareholder wants to sell their shares; it serves the purpose of a pre-nup in that respect, if you imagine that she’s your business wife.
Oh, and you need to work out how it is that you are going to get paid.
While you are thinking about these things, you’ll be considering what you bring to the business and what she brings to the business. You’ll be thinking about your future and how you are going to make things work. The beauty of exploring different business structures and determining what will go into your business’s governing documents is that it forces you to give real thought and have real conversations about how you are going to work together; it will help you to be more successful together. And if you can’t work through these issues now, while you’re still besties… then you will probably have a much harder time working through the challenges that inevitably arise in business later on.
Starting a business with a friend is an exciting thing. Sometimes, those chance meetings lead to solid gold successful businesses that are the stuff that dreams are made of. Sometimes, they burn out like a shooting star. Either way, if you want to give your business a good chance of being bigger and better than you and your bestie could be on your own, do see a good commercial lawyer who you feel comfortable talking with, and explore the options so that you can make sure that you have a solid legal foundation for your business from the get go.