It so often happens in practice that a group of individuals, small or large, hit upon a sound business idea and take the plunge. In many cases the business gains traction and starts to become successful. The founding partners (or directors) begin to reap the fruits of their endeavours and there is invariably a ‘honeymoon’ period during which these hard earned fruits are enjoyed by all. Here, however, comes to the rub.
In the interests of employing start-up capital simply with the aim of achieving the business objective, principally profit and otherwise relatively short term commercial success, often overlooked is the importance of properly regulating the relationship between these founders, particularly in relation to profit share, dispute resolution and ultimately ‘exit’ provisions.
There is nothing quite like money, especially lots of it, to bring about curious and often irrational aspects of people’s personalities.
Money is indeed the root of all evil, and I can unashamedly admit that most of the costly commercial disputes I have been involved in over the years have arisen because a business has achieved success, but that its founders have failed to appreciate the importance of contractually regulating their relationships with one another such that they fall into dispute. An almost invariable consequence of this important oversight is that the trust between them quickly dissipates and a potentially highly lucrative business with a bright future is left floundering and very often fails quite simply because the founders failed to appreciate the importance of putting in place a simple written contract dealing, up front, with potential contingencies and disputes.
Of one thing I am certain, and that is that the cost of litigation will always very substantially exceed the relatively nominal cost of having a contract drafted between the founders at an early stage, even if this contract covers simply the key issues or scope for dispute, and nothing else. Apart from anything else, a contract gives these parties peace of mind and allows its signatories to throw themselves into building their businesses confident that they have, as far as they are able, eliminated the risk of the crippling cost of litigation by taking this important step.
However, it is not only contracts which regulate our ‘inter-partnership’ type relationships which should command our attention, but also contracts with our clients/customers and with suppliers or debtors.
In general, it is possible for your attorney to give you a fairly accurate pre-estimate of the cost involved in drafting contracts to protect you, and getting this done should be considered a priority and not simply a ‘grudge purchase’. We would be more than happy to have an initial without cost or obligation chat with you in order to advise you as to whether you are adequately protected, and to offer you a free audit of any existing contracts you may have in place. A stitch in time truly does save nine when it comes to contracts.
Should you wish to discuss this further please don’t hesitate to contact me on 021 702 3070. You owe yourself the peace of mind.
Michael Matthews