DIVORCE – how not to fall out of love with your business partner

ENTREPRENEURS are being urged to think wisely before ‘hopping’ in and out of business relationships.

According to Nick Bates, national head of Irwin Mitchell’s commercial litigation department and a partner in the firm’s Leeds office, business break-ups can be as painful, expensive and as petty as civil divorce.

“Shareholders and partners often sit in front of me and tell me how they feel let down by the other party and have had their trust abused much like a spouse would with a divorce lawyer,” he says.

“What is needed, although not the most romantic of notions, is a pre-nuptial agreement, which provides certainty if thing were to go wrong. The best time to do this is before marriage at a time when you do love and trust each other and can talk sensibly about who gets what. The same applies in business.”

Mr Bates argues that a properly drafted Shareholders Agreement or Partnership Agreement dealing with issues that might cause a disagreement can be the best investment a business ever makes.

It can be done at any time before a dispute rears its head, although he says that the sooner the better.

“Like any relationship, if your partnership is a healthy one it will survive a little interrogation and sitting down with a lawyer to informally or formally talk things through,” advises Mr Bates.

“With an agreement in place, when cracks begin to show you could do yourself and the business more harm than good, closing the door on viable resolutions as emotions take over and instant communications such as email make it all too easy to react inappropriately.”

Figures show that around two thirds of business partnerships break up within the first five years – and that’s in healthy economic times.

According to Mr Bates, more and more business leaders are falling out with each other at the moment with many complaining that they are keeping the company going single-handedly.

“That’s not to say you must steer clear of partnerships whilst times are tougher as, with the right choice of partner and the right approach, a business partnership will lead to improved profit, business growth and help strengthen its chances of survival,” he continues.

“However, it is best to be prepared for the rocky patches that every relationship will inevitably go through especially now as money worries are likely to exacerbate any potential problems.”

According to Mr Bates, many successful firms have never planned what to do if an issue arises between owners. He says that Irwin Mitchell spends a lot of time dealing with such cases, which could have been resolved earlier and more cheaply if such considerations had been discussed.

“We once had a client that had great affection for his boardroom table,” he recalls.

“It was a nice table, it was just the right height. It was such a nice table that his business partner also loved it and, between them, they spent years looking after it before they split up.

“They spent £150,000 and two years arguing about the table in court. The table was worth £5,000 – but it was a nice table, but surely not that nice.”

Mr Bates adds that the best approach to any business partnership is to proactively manage risk both before and after it is formed and to get a business ‘pre-nup’ so that everyone knows exactly where they stand.

“If you don’t you may find that a boardroom table is the least of your worries,” he warns.