These days, it is understandably common when parties get together over a mutual interest and then spot a business opportunity which they think they could profitably develop together. A joint business may be set up either as an equal partnership or an equal shareholding in a limited company and, of course, there are also many occasions when a business is set up jointly simply for tax efficiency reasons and one partner is not actively involved at all.
When times are happy, this is the very best way of operating as each has an equal say and can be equally involved in the operational and financial running of the business and the tax burden is minimised between them.
However, what happens when things go wrong? Unfortunately, in my experience, this equal ownership has the potential to be disastrous in these circumstances as one partner can scupper the business for the other by, for example, refusing to agree to payments from the bank account or to enter into new contracts, continuing to take an equal share of profits even though not doing any work or alternatively insisting on coming into work every day even though this brings a frosty atmosphere into the workplace which makes the other staff uncomfortable and so forth.
These matters are not easily resolved without a high level of goodwill and generally need professional legal help. The following however, might help:-
- Try to reach an agreement over acceptable withdrawals/payments from the bank so that each and every payment does not require authorisation.
- Try to agree who should continue with the business and how much the other’s interest in the business is worth.
- Try to keep the difficulties away from the staff (and customers) as far as possible. This is not in either of your interests.
Finally, if you are thinking of going into business together, you may wish to consider an unequal share in the business, so that one person is able to retain control of the general operation of the business in the event of such problems.