Member Article

Lee Marston – partner at Clough & Willis – on why married co-business owners risk not having a legally binding agreement at their peril.

The age old saying of ‘don’t work with your family’ is considered by many a golden rule that should never be broken, but for others working alongside their loved ones is what makes their work - and business - special.

Over the past 25 odd years, thousands of separating spouses have come through my door and a fair few of them have been co-directors/ owners of a business. As you can imagine, that can muddy the waters in what is already a testing and emotional time.

I’m not being a miserable cynic and I’m sure that you, the reader, will never split from or fall out with your spouse, but if you do own a business together then I’d strongly advise that you take a few simple steps to safeguard both your interests whatever might come your way!

The simplest and most effective thing is to draft a legal agreement that works for both of you. This may sound obvious but recent research that was conducted by Clough & Willis revealed that 90% of North West SMEs understood the risks of not having a legally binding agreement in place yet just 48% of companies had one. Which type of agreement you choose will depend on how your business is structured: a Shareholders Agreement if you are incorporated or a Partnership Agreement if not.

The main advantage of entering into either kind of agreement is to define each party’s role in the business. This gives clarity and can be used in many contentious issues such as a commercial dispute but also in a family dispute including a divorce. They can also assist in other situations; for example, if one side claims they have had a more significant role than the other; cementing the fact there is some value in the business and it is not just an income bearing asset; as well as when one party is sidelined or their historical role is downplayed.

Another big advantage is that they give commercial enforceability rather than having to rely on the Family Courts which cannot assist when one party is forcibly removed as a director, excluded from the business’ premises or from working at all.

To sum up, the overriding hope is that a Shareholders Agreement or Partnership Agreement will never be enforced but why take the risk? Family businesses are the backbone of our economy but the advice should also be to separate the commercial realities and the emotion.

This was posted in Bdaily's Members' News section by Clough & Willis Solicitors .