Setting up a business with others: what are the legal issues

In SME

Setting up an enterprise can seem like a complicated business. To avoid making many of the mistakes that often befall new business owners, it is always advisable to seek the assistance of a specialised business solicitor.

With their help it is possible to identify the specific requirements of a business, identify future challenges and how a business may be structured to maintain efficiency and save money in the long run.

It is particularly important to seek legal support for those setting up an enterprise with another individual or group of individuals. If the responsibility for making decisions and profits made are to be divided between multiple parties it is crucial to take legal precautions to safeguard the rights of all concerned.

Setting up
There are a number of different company structures available to businesses with more than one owner. Partnerships, limited companies and limited liability partnerships each have their own benefits and drawbacks, so it is worth consulting a legal service provider to help identify the most appropriate structure for a specific enterprise.

While a legal contract is not technically required for a partnership, failing to draw up a contract can lead to significant problems in the future. A legal expert will typically recommend that the following terms are agreed in writing as a minimum:

-       Financial contributions towards the setup of a business

-       How profits will be shared

-       How decisions will be made

-       What should happen if a partner intends to leave the business

Issuing shares
The allocation of shares not only divides the ownership of an enterprise between parties but it also entitles parties to a percentage of the profits of a business.

A legal service provider can draw up a shareholder agreement to reflect the division of a business. In the case of growing businesses looking for more investment, diluting shares or redistributing shares can be an effective way of raising funds in exchange for partial ownership of a business.

Protecting against disagreements and disputes
Anything is possible in business. This includes falling out with a shareholder or business partner. For this reason, it is important to ensure that contracts and transactions within the business are fair and robust – which will help to protect interests and assets in the event of mediation or litigation.

Specific terms of a company agreement, such as the powers of a director, are outlined in the articles of association. By taking the right legal measures, selling a business can be made more straightforward and stress-free.

Should one partner choose to leave the business, a legal service provider may also be required to amend contracts within the business or assist with the changing of partners.

If you are looking to form a company with a partner or partners and need legal advice, start comparing solicitors that can help now.

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