Mark Cornish, Partner
So, you and your friends or relatives have hit upon the product to beat all products - "the next big thing".
You've set up your limited company and orders are about to come rolling in. You've each invested most of your life savings into making it a success and you're raring to go. There's no way you can fail.
The biggest mistake you can make at the start of a business venture is to assume that because you're all friends the money will come rolling in and it will all be plain sailing.
I am often instructed by forlorn businessmen or women who have had to learn the hard way that such ventures don't always work out quite the way they planned. More often than not there are no formal written arrangements in place with their business partners, and when they are advised about their limited rights in company law they are inevitably in for a shock. The options available to a minority shareholder are often limited and expensive to pursue. Disputes between warring shareholders frequently run into tens of thousands of pounds.
The simplest advice I could give to anyone considering investing a significant sum in a business is to get some legal advice before committing yourself and your money to anything. Company law is full of pitfalls for the uninitiated, and some simple advice at an early stage in any venture can prevent difficulties and expense in the future.
For example, a shareholders agreement allows shareholders to agree the basics about how a business should be run and how they will approach problems (good and bad) in the future. They can be drafted to cover almost any scenario you can think of, and some lawyers will have a bewildering array of sample clauses to cover things you hadn't even thought about. It really doesn't take much common sense to work out that you and your fellow business partners are far more likely to agree how a business should be run or what is a decent and fair process for resolving disputes when you're still on good terms.
If you're already a shareholder in a company, it's not too late to start thinking about putting some suitable arrangements in place now. Unless of course your reason for thinking about it is that you are wondering quite how your fellow business partner has just managed to order his new Ferrari whilst you continue to cycle to work and the company appears to be unable to pay its creditors. In that scenario it may already be too late.
