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Setting up a business with your partner or spouse – expert guidance

Setting up a business with your partner or spouse – expert guidance

Setting up a business with your spouse or partner may make perfect sense, but there are vital steps that must be taken to protect your venture in the event of a relationship breakdown. Move Commercial calls on the family law specialists at MSB solicitors to offer some expert guidance.

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Going into business with your spouse or partner has plenty of benefits. You’ll have a sound relationship already and will trust each other to act in both of your best interests. You’ll have plenty of time to discuss work issues as you’ll spend so much time together. And, if you have kids, you’ll have the freedom to both set your own hours to ensure family life isn’t disrupted too much.

However, there are also plenty of pitfalls including, of course, the sad fact that many marriages end in divorce – 42% to be exact. Along with the emotional impact of a marriage ending you’ll also have to deal with the business aspects and what to do with the company, so MSB Solicitors provides some advice.

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Make it official from the get go

“As soon as you enter into a business, regardless of whether it’s with family, get an agreement drawn up – either a shareholder agreement or a partnership – dealing with who does what, profits and how any capital is dealt with,” says Emma Carey, head of family at MSB. “As unpleasant as it may be, think about the worst case scenario and how things would pan out.”

Carey says it’s important to consider where the money is coming from to set up the business and to record and agree this along with whether it is repayable as debt to a third party or a gift.

“This is particularly relevant when a parent provides a sum which is then invested,” she says.

Know your options

Despite the importance of having an agreement drawn up, Carey says with family there is often a lot of informality and, as such, many marriages fall apart with no formal agreements in place for the family business.

“If nothing has been put in place and the couple find themselves in dispute, the options are clear – they can either continue working together, have one party buy the other out or both sell up,” she explains.

“If they sell then they will need specialist advice regarding the sale of shares or assets and obviously family expertise will be needed as to how this affects finance.”

Keep it formal

“If the joint owners are able to continue they will need to draw up a partnership agreement or a shareholders agreement dealing with the day to day running of the company, the shareholding between the parties, protection for any directors to ensure that one party cannot remove the other from the day to day running and details of how capital is held,” says Carey. “Negotiations may obviously be difficult but if they can work together then the company can continue and they can receive the profits.”

Carey says minority shareholders need to be especially careful as they are more easily removed without the supporting agreements.

Be careful of terms

Legal speak can be confusing so you may think you have formal agreements in place simply because you’ve misunderstood the terms.

“If they are only ‘trading as’ they are a partnership, and so they need to take care as if they do not have an agreement to say otherwise then when one party leaves the partnership is dissolved,” explains Carey.

Trust the experts

“Dealing with a jointly owned business in the wake of a marriage breakdown is a complex and sensitive matter,” says Carey. “It’s essential you seek the advice of experts who can deal with the issue not just from a commercial point of view but from a family point of view too.”