Business relationships go bad. Unfortunately it happens. People
who set out with the best of intentions and the best of friendships
can find themselves locked in bitter disputes over business assets.
This can be a result of changes in their lives, their relationships
or the business itself, and often cannot be foreseen.
As Business Lawyers we often find ourselves, for want of a
better word, "nagging" our clients about putting
agreements in place with their business partners, such as
partnership agreements or shareholders agreements. These agreements
cover what is to happen if unforeseen events occur or things go
wrong. Some of the reasons given by clients as to when our advice
is not taken include... "it's not something we need right
now"..."it's not in our budget"... "We are
good friends, we would never do the wrong thing by each
other"... "we have already agreed what we will do if
something changes, we don't need it written down"...
"We're too small to need something complicated like
A recent case before the courts is showing why, no matter how
strong the relationship, it is vital to have agreements in place
with your business partners. Grill'd started as a single
suburban burger restaurant. It was founded by three friends. It
grew into a vast chain of restaurants now valued at over $300
million (although that valuation is in itself part of the
dispute).Two of those friends remain in the business and are now
involved in a significant legal battle.
The issues in the dispute are wide ranging. The value of the
business is one issue. Oppression of a minority shareholder is
another. A third is the accusation that shareholders are involved
in rival businesses. Side issues include scandals regarding
underpaying workers and personal conflicts between the two owners
that seem on the surface unresolvable.
The Grill'd dispute will be resolved one way or another,
through a settlement negotiated between the parties or a decision
of the court. The path to that resolution, however, is a very
expensive one. Both parties will have significant legal fees, both
parties will spend significant amounts of time on the dispute and
away from their business, and the result will be a very unfortunate
blight on the name of their business.
It is not evident from the reports what agreements were in place
between the parties; however, a well structured Shareholders or
Partnership agreement can go a long way in reducing the risk of
such a dispute escalating to court proceedings.
Shareholders Agreements and Partnership Agreements can be
prepared to set out how businesses will be valued if a partner
wants to leave, the rights and obligations of minority and majority
shareholders, as well as what shareholders can and can't do
outside the business (for example – can they set up a rival
business, and if so, in what circumstances?).
The time to set up the agreement is when the parties are still
getting along, but which covers a time when things aren't so
good. Preparing for the worst doesn't mean you can't be
good friends, it just means you are better business people.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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