Top questions to discuss with your business partner (checklist)

One of the ways to make partnerships unstable, to waste time and money, is not to write a partnership agreement or, in a simple way, an agreement between the founding partners.

In theory, everyone knows everything, but when it comes to practice, it turns out that important issues that in the future may cost the life of the company are left out. We have created a checklist of key issues that partners should discuss in order to avoid closing the company in a year. It is necessary to discuss the rules of joint business “on the shore”, but if you have not already done this, it is high time to protect yourself from future problems. And so that it does not work out like in that joke …

… we have written the TOP 6 legal tips to consider before drafting a partnership agreement.

Category legal advice

  1. The legislation does not require the mandatory conclusion of a partnership agreement. But unlike articles of association and articles of association, a partnership agreement is a confidential agreement between partners. In it, you can settle any provisions that relate to the activities of your business with a partner and not disclose them to unauthorized persons. The process of changing the agreements under the partnership agreement does not require registration and amendments to the charter.
  2. Within one year, 496 cases arising from corporate legal relations reached the Supreme Court of Ukraine, so it is important to come to an agreement “on the shore” before starting a business.
  3. Often, instead of concluding an agreement and settling relations, the parties say “we trust each other.” These partnerships are very similar to those in a marriage, where the spouses first trust each other and then divide the property in court. When a dispute arises between the founders (for example, after the death of one founder, the heirs want to sell the business, and the second founder wants to develop it further), the courts take years, and the business is actually blocked.
  4. Do not do business 50/50, because in the event of a conflict or disputable issues, you will find yourself in a deadlock and your business will again be blocked.
  5. Provide in the partnership agreement the resolution of deadlocks (a situation when none of the shareholders has enough votes to make a decision on a key issue of the company’s activities).
  6. If you are uncomfortable with each other asking questions and discussing the terms of the partnership agreement, hire a lawyer who will do it for you and help you draw up the contract correctly.

Checklist of questions for partners

Startup missions and goals

  • Why do you need a partnership agreement?
  • What was before you decided to compose it?
  • What can change after its compilation?
  • How often will we renegotiate the partnership agreement?
  • What is our business?
  • What is the core value we carry?
  • What are we focusing on?
  • What do we want to achieve?
  • What is it for each of us?
  • What problems do we need to solve?
  • What is the criterion for achieving the goal?
  • Will we buy other businesses?
  • Are we ready to join a bigger business?

Company capital and contributions

  • Who contributes the initial capital, are additional contributions expected?
  • What exactly is considered a contribution (money, property, intellectual property, services rendered, etc.)?
  • What will happen if the partner does not cope with his individual obligations on the deposit (not all the money / did not transfer intellectual property)?

Control

  • Who manages the company’s operations, who will be the director?
  • What powers does the director have? Are there any restrictions on the powers of the director?
  • What is the procedure for appointing / removing a director, or forming / dissolving the board of directors? What is the procedure for changing a director?
  • What are the restrictions on the amount of transactions with third or affiliated parties that a director can enter without the consent of other founders?
  • What are the collegial powers of the founders, and what powers are solely vested in the director? Who will be responsible for making decisions by the director?
  • What is the responsibility for exceeding authority by the director? Who will be responsible for making an illegal decision?

Profit distribution

  • How much will the founders own the company?
  • How will the company’s profits be distributed among the founders?
  • How is the profit distribution decision made?
  • Will there be a moratorium on profit distribution? How long?
  • What part of the profit is directed to the further development of the business?

Founding Partner Meetings

  • What is the regularity of meetings and who can initiate meetings?
  • What is the quorum for general meetings?
  • How are issues within the competence of the meeting resolved?

Work of partners in the company

  • Distribution of areas of responsibility, who is responsible for which direction?
  • Is it allowed to work somewhere else on the side or freelance?
  • Will there be KPIs for partners working for the company?
  • What if the partner does not fulfill / fulfill inadequately the obligations assumed in their area of ​​responsibility?

Privacy and competition

  • What information is strictly confidential and what can be disclosed?
  • How are the issues of non-enticement and non-competition resolved?

Attracting investments in the future

  • What is the procedure for financing a company’s project?
  • What is the procedure for terminating project financing?

Shares

  • Is the issue of new shares allowed? If so, for what purpose and in what order?
  • What classes of shares are there? How do the classes differ? For what cases is this or that class intended?
  • What restrictions do you want to place on the transfer of shares?
  • Will there be a moratorium on the transfer of shares? Can a shareholder sell shares to third parties?
  • How are minority shareholders’ rights protected?

Dispute Resolution

  • Will any mechanisms be used to resolve deadlocks, such as Russian roulette, Texas shoot-out, Mexican shoot-out (Dutch auction)?

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