Business guide - Going into business with friends

Opportunities to create a business with friends who share your passion rarely come along. But when they do, the opportunity should be embraced, but only if you have the right agreements in place from the outset. That way everyone is protected and friendships should hopefully survive the challenges you will inevitably face.

Key aspects of a Directors Agreement

If you are going into a business partnership, you will need to have a agreement in place to cover the following:

  • Remuneration
  • Key duties, roles and responsibilities
  • Obligations
  • Restraints, such as non competition clauses.
  • Termination or exit strategy

The reason for starting with this is simple…without an agreement in place, you are creating a unnecessary risk that could jeopardise the success of your business, your capital and your friendships.

Lesson 1 – Top tip – ‘Vesting’ and ‘Cliff’ agreementse

If you are considering going into partnership, you might want to consider an agreement that protects a partner if another partner decides to leave early or sell their shares.

I recommend reading the following post on The Startup Toolkit for more detail on how you can tailor an equity agreement, whilst also ensuring commitment to the tasks an individual partner can be held accountable for.

Lesson 1 – My experience

3 years ago, I jumped at the opportunity to buy a small specialist food business with two friends. But what started for me as a hobby business, quickly became a successful small business with 4 employees and a lot more responsibilities than I had originally anticipated or prepared for.

However, creating a formal agreement between all us inevitably protected our friendship, especially when myself and another partner decided to sell our shares to the remaining partner, who wanted to dedicate all of his time to the business. Going into business with people who share your passions is a wonderful experience and I would thoroughly recommend it, but having the right agreements in place is essential, since it protected the very thing that started my own experience in the first place…friendship.

Next edition – Have you planned for growth?

Find out how to plan for success and understand your potential weak points before its too late.

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This article has been compiled using information available to us up to 19.06.15.