How to Legally Protect your Business from Co-Founder Disputes

When it comes to setting up a new business, chances are you’re doing it with a friend or family member – someone you’ve built up a tight-knit bond with, over time. It’s that tight-knit bond that’s brought you to the point where you feel nothing could possibly go wrong when you join forces. You’re both on the same page and everything seems rosy.

But what happens if a business contract dispute rears its ugly head? What if you need a commercial barrister to help sort things out, or a construction contracts adjudication service? Of course, no one sets out in business wanting this to happen, but what if they do?

If you’re worried about what could appear on the road ahead, or a co-founder dispute has just begun, we’re here to share what you’ll need to consider.

In the Beginning...

One sure-fire way to help ensure any potential problems don’t become bigger than they need to be is to enlist the services of a corporate barrister to draw up a founders’ agreement.

A founders’ agreement is a type of contract that the founders of a business agree to abide by. It outlines everything to do with your -

Business relationships
Obligations
Rights
Responsibilities
Liabilities

Once a founders’ agreement has been put in place by a commercial law barrister, the founders are in the best place possible to feel confident that if things do go wrong, there’s a legally-enforceable agreement in place that will help safeguard your new business. Think of it as a safety net – there to catch you if things get messy.

As well as a founders’ agreement, your commercial barrister should also be able to draw up any contracts and shareholders’ agreements too. These are paramount if you’re keen to avoid the services of shareholder dispute solicitors further down the line.

Transparency

All of these documents are designed to ensure there’s transparency in everything you do when it comes to your new business. Ensuring these agreements are put in place is the best course of action if you want to keep things clear between everyone involved in the business.

A founders’ agreement will address everything from what would happen if one of the founders becomes too ill to run the business, if one of you dies, or if one founder decides they want to sell their stake in the business to a third party who the remaining founder has no wish to collaborate with.

Thinking about all these worst-case scenarios might not be the nicest part of setting up in business, but they’re absolutely necessary if you want to avoid a lengthy shareholder dispute resolution process.

Success

If you’re fortunate enough not to be one of the 20% of small businesses that fail in their first year (according to research by Fundsquire), then as well as a growth in success, you’re also likely to experience a growth in potential issues with the business, too. This is a natural part of the process of an expanding business, and most of these problems can be addressed with a little careful foresight and consideration in your founders’ agreement.

Potential issues that you may encounter could be to do with -

Intellectual Property
A Stalemate with Business Members
Selling Shares
Co-Founder Equity

Intellectual property (IP) refers to something that has been created as a result of creativity. It is intangible property, so it could be a logo, a product name, music, or an invention. If one of the founders has created more IP than the other, then if something goes wrong with relationships, this could be an area where a problem arises. An intellectual property barrister would be a good person to assist with such circumstances.

Hands Up All Who Agree

When businesses first start out, they are usually small, so any decisions that need to be made can be done so relatively easily. After all, getting two people to agree to something is much simpler than getting 10 people to. When you set up your shareholder agreement with a direct access barrister, this is dealt with in a common clause that states all decisions related to the business must be consensual.

Of course, as your business expands, and more people become involved with the running and management of it, stalemates over decisions can occur. That’s why it’s wise to make sure all shareholders and founders are on the same page when it comes to the direction in which the business is heading. Again, transparency and communication are key to avoiding lengthy, arduous disputes.

Outside Help

As your business grows, you may find you get to the stage where you need to engage with external investors in order to enjoy the level of expansion you want. If this happens and you’re looking to sell company stock, but are unable to due to the unwillingness of a minority shareholder, you could find yourself in a sticky situation. However, if you’ve pre-empted this situation occurring, then you’ll have dealt with it in your founders’ agreement.

Time to Go

Lastly, with regards to co-founder equity, you can again avoid any potential disputes if you lay everything bare in your founder’s agreement. Think about what you’d want to happen if one of the founders wants to leave and sell their share of the company. Would this be possible without the company’s consent? Or would you want an agreement in place? If you’ve any inclination towards avoiding a lengthy dispute, then make sure you’ve got everything set up in place beforehand. Plan for the worst and hope for the best.

At Mercantile Barristers, our expert team of commercial barristers in London will ensure you’re prepared for all eventualities. Skilled in company and commercial, property law and planning, and construction and engineering, our team of commercial litigation barristers is ready to make sure your business journey is as smooth and easy-to-navigate as possible.