You need to wear a lot of hats to be in business. As a business owner you start out wearing many ‘hats’ as you take on all the work yourself.
- - Product or Service: What your business does.
- - Strategy: Where your is business going.
- - Structure: Protecting your business and assets.
- - Financials: Cash flow, profit and loss.
- - Marketing: Reaching your customers.
- - Sales: Closing deals with customers.
- - Personnel: Taking care of your team.
- - Operations: Oversight and management of the other sectors.
When your business starts to grow, reaching the next stage will involve handing one of these hats to someone else. But which hat? What should you look for in a future business partner or shareholder, and how can you avoid managing disputes between shareholders?
What’s the end goal for your business? Is it to build lifestyle, or generate revenue before selling? Make sure you’re on the same page with your potential business partner for the end game before you start out.
Yin and yang, light and shade, Superman and Batman. Find a business partner with skills that supplement and compliment yours. Someone whose strengths and weaknesses are an opposing match to you.
Spend time learning the other’s style and way of working so you know how to motivate and support each other. Business can be stressful, so being able to count on your partner is vital.
Are they financially stable, or are they likely to add more risk? A credit or background check plus an upfront chat about finances is important to avoid surprises down the track.
Even after due diligence, shareholders and business partners can still come to loggerheads. Disagreements can be stressful, seriously harming staff morale and business earnings.
How can you go about managing disputes between shareholders so they don't damage your company? Here are our tips.
Party A issues notice to Party B requiring them to either buy all of A’s shares, or sell their shares at a specified price. B then has the option of buying or selling at the offered prices. Ultimately Party A doesn’t know if they will be bought out or not, unless one side is unable to buy the shares, so has no option but to sell.
Party A notifies Party B they want to buy their shares. If B decides to purchase A’s shares instead, both parties bid for the shares in an auction. This only works if both parties are matched financially.
If Party A can prove Party B’s non-performance under a shareholder agreement, they can acquire the ‘right’ to buy B’s shares.
Unless one party has acted unlawfully, breached their contract or director duties, you don’t have grounds to go to court to settle your dispute. Liquidation may be an option with both parties sharing the costs, but only in extreme cases.
To save trouble and prevent dragged-out disputes, the best solution is a crafted shareholder agreement. Most standard agreements lack teeth and don’t facilitate proper mediation or negotiation. A tailored shareholder agreement will properly address the framework and structure of your company, and put in place a clear dispute resolution process.
For more information on shareholders and companies, download our free Guide for NZ Companies in Financial Difficulty to discover your different options.