It is surprising how many business men and women ignore the three Ds of business life! All three can affect an unlucky few but most business people have a run-in with one or two of ‘The D’s’ during their business careers.
The Three D’s are, in no particular order:-
Dispute
Divorce
Death
Running a business was, as the owner of another law firm once pointed out to me, like pushing water up a hill. Another commented, perhaps unkindly, that organising people was like herding cats and a third, perhaps most accurately compared running a business to being in charge of a team of horses pulling a stagecoach at breakneck speed – I know what she meant.
Dispute
This is the first of ‘The three Ds’. Business owners commonly encounter a dispute of one kind or another every week, certainly every month of their working lives. However, there are disputes, and there are serious disputes. Serious disputes invariably involve money (e.g. a debtor who will not pay money owed to you) or and more seriously, a dispute over a share to which someone feels entitled from your business if they have an interest in it. All of these affect partnerships, limited companies, LLPs and even sole proprietors who may have employees earning via a bonus scheme. Generally speaking, avoidance of disputes is impossible, but managing the dispute before it gets out of hand is possible if the right steps are taken at the outset of the formation of a business, or at a point when all the parties who are in ownership are singing from the same hymn sheet and not in dispute.
How is this done? In the case of partnership, have a Deed of Partnership prepared. For a limited company and LLPs, have a Shareholders’ Agreement. In the case of sole proprietor with colleagues on bonuses, set out the terms for earning the bonus and the sums payable, clearly in writing.
What goes in one of these agreements? It is possible to deal with all the basics and more. Things like ownership shares, capital injections, profit division, life insurance, dispute resolution and termination all feature high on the list.
Divorce
Having been through divorce, I know the pain! However, do remember that whatever you plan for in divorce or separation, the Court always has an overriding say in all matters. It is possible to keep a difficult situation under control by keeping lines of communication open and not texting or emailing the other half late at night with terse or acerbic commentary on their behaviour. Keep the children out of it as well. They do not deserve to suffer the pain you and your other half are going through. They will also thank you at the time and in later life if you keep it civilised. It is always handy to have a Pre-nuptial Agreement but most people do not and remember the court has a power over and above it. Particularly, if you are in business with your other half, think about how the business provides your sole/joint incomes, how much you are dependent upon it and the need to keep it going, and whether you can realistically continue to work together once you are no longer living together.
Death
There is much you can do about this last of the three Ds, and failure to think and do something about it in advance is negligent in the extreme. So make a Will. Think of your family, your children (and the appointment of guardians if any are under the age of 18 years) and ownership of the business or your share in it. Have you got your life insured so that a policy will mature on your death and possibly pay out to co-owner(s)- think Cross Option agreement? Make Lasting Powers of Attorney, giving powers to others to make decisions if you become incapacitated e.g. as a stroke victim, a road accident victim or similar. Think about whether you might need a separate Business Power of Attorney for Finance and Property, as your spouse or children may not be the best people to make decisions in relation to the business,especially if they have not been working in it with you and if your incapacity might be only short to medium term. Set up a Trust if you really must. Take inheritance tax advice, think about the ownership of your property, and potential lifetime gifts. Take legal advice and tax advice from a tax specialist/ qualified accountant.
Most of all do something about ‘The Three D’s’ now!
Barry Bond is Founding Partner at Jarmans Solicitors.
