Business Structure – Document how it will all work

Posted by Luke Mitchell on 14 March 2018
Business Structure – Document how it will all work

Once the proprietors of business have settled on the structure that will be used, it is essential that they properly document how both the day to day and longer term business decisions will be made.

A well documented shareholders (or partnership as the case may be) agreement can remove much of the grey that can come with being in business with another person. A properly documented agreement is particularly important where, as commonly happens; only one person will work in the business while one or more others provide the capital.

As a minimum, the relevant agreement should document the following:

  • How both day to day and major operational decisions are to be made;

  • The appointment of key staff to the business;

  • How the business will be financed and what happens in the event that the business requires further funding;

  • How directors will be appointed (or in the case of a partnership, how the partnershipcommittee will be formed);

  • How often the Board (or partnership committee) will meet and what decisions its members can make on behalf of the business;

  • How any additional owners are to join the business in the future;

  • What will happen if one or more owners wishes to leave the business;

  • How disputes between owners are to be resolved.

Any business structure, no matter how complex, will be largely rendered ineffective without a well drafted agreement that captures how the business will operate.

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