Fights Over the Carcass

Here is a seven point checklist of the predictable disputes between shareholders/partners who do not have a partnership or shareholders agreement:

1.  Bidding for the business name and domain name registrations belonging to the partnership -Note that these registrations do not mean that you own the name as only a registered trademark confers ownership. Therefore, they have limited value. You could agree not to use the registrations, but this is a waste, isn't it?

2.  Preparing final accounts- Should this not be done by an independent accountant so it is all above board? Well yes, if you both don't mind paying more for an accountant who is unfamiliar with the business, charging more and taking longer.

3.  Competition- You could agree to split the client list and look after your own clients. But what fun is that? Outright war may be inevitable, especially if you are the stronger partner.

4.  Threatening to sue your ex-partner- You may see this as one of the benefits of not having a partnership/shareholders agreement. Often partnership/shareholders agreements provide that no court action can be commenced without an attempt at mediation. Alternatively, it can provide for arbitration which lacks the drama of threatening to slap a writ on your ex-partner.

5.  Working out who paid for what- With GST it is usually too easy to work out who paid for what and especially if there is not much money in the kitty this argument usually runs out of steam.

6.  IP rights - These can be in documents, logos and ways the partnership did things.

7.  Collection of the debts owing to the partnership -This can be an exercise in one partner chasing debts from friends of the other partner.

Many of these predictable disputes can be anticipated by a partnership/shareholders agreement which provides a mechanism in the event of a breakup. 

To fight over the carcass of the business normally involves legal costs. Therefore, only fight if it benefits you (not just to wind up your partner). Ask yourself, 'What's in it for me?’. If the answer is 'nothing much', opt to shake hands and move on.

Conclusion

Most people insist on having a shareholders’ or partnership agreement but usually only the second time around.

© Paul Brennan 2008-2018. All rights Reserved.

Extract from "The Art of War, Peace & Palaver: The Contentious Guide to Legal Disputes" by Paul Brennan

Listen to this article on the Law podcast