Governance structures for shared business ownership
The circumstances
A marketing business was being run by three partners under a company structure. As is often the case with business owners who dive straight in, they had neglected to put in place governance documents.
The business employed 30 staff and had a turnover of almost $20 million. All three owners were married with kids, which from a business perspective can carry some risk as in the event that one of the owners passes away or goes through a divorce, a spouse or partner may become involved in the business.
Capital Five’s considerations
Shareholders agreement
It was important the business had an agreement for what to do in the case of a dispute, such as if one of the owners wanted to exit, or if one of them passed away. We had to get the governance structures up to scratch to clearly set out how those circumstances would be dealt with.
Succession planning
The business needed to have a plan in place in case one of the owners was to pass away. Our advice was that if this were to happen the business should be valued and the spouse would be paid a third of the value in exchange for shares in the company.
Personal structures
We made sure the three individual owners were set up in a way that protected the shares in the company, which were very valuable. We also wanted to ensure that any profits they were gaining from the business were taxed effectively. To achieve this, we worked closely with their accountant and financial planner to put these structures into place.
In the end, the business was able to successfully put in place a comprehensive governance structure that managed potential problems that the company might face. The partners were now protected against disputes, disagreements, and uncertainty about what would happen in certain circumstances. They could focus on running their business with confidence, knowing that their interests were protected.