Friends as partners can be a risky business

Jul 15 2008 by Karen Dent, The Journal

SMALL business owners are content to set up partnerships on the basis of a handshake leaving them open to problems if they have a bust-up, researchers claim.

Nearly seven out of 10 of those questioned by mobile phone network O2 and the Law Society had no legally-binding contract with their business partners. Those that set up with family members were least likely to put anything in writing. O2 and the Law Society have teamed up to put together an SME ‘pre-nup’ – a free checklist of the basic requirements needed to form a business partnership agreement – which can be downloaded at http://www.o2blueroom.co.uk/SmeNup.

Lee Stobbart, who owns Coffee Design Ltd based at the Biscuit Factory in Newcastle, started a buy-to-let property venture with a friend. He is now organising the paperwork to ensure he is protected in the event of anything going wrong, and planning to put the papers in place before he takes on an old friend.

“As much as he’s a good friend, it’s important to cover your back because you don’t know how things are going to pan out,” said Lee.

“Obviously he will have a say in the business and I need to make him a good offer, but I need to protect myself from the legal perspective.”

Businesses downloading the checklist can also attend a free consultation arranged through the Law Society with a local business solicitor.

Simon Devonshire from O2 said: “Given the current economic climate, it’s critical that small business have a solid legal foundation.”