- Is it a good idea to get into business with your spouse?
This is one of those experiences that can be answered in two extremes. One can say its either and excellent idea whilst another would say it’s an absolute disaster.
I dare to say, it is what you make of it.
Marriage is about working together and supporting each other. Taking this to the realm of business is taking the principle of “teamwork” to another level and adding to it multiple layers of potential complexity, hence the increased risks of failure.
If the parties are not proactive in taking certain actions upfront, they can be sure it is going to be a disaster however if they are willing to commit to taking certain precautionary measures upfront and keep reviewing these along the journey, making changes where necessary, this arrangement can be the best they have ever taken, not just for themselves, but for their families and generations after that.
One of the fundamental questions to answer as a couple is the why?
Why the partners are going into business together will determine a lot about the form and even the legal nature of the business. The factors that drive the individuals to get into business together will inform for example the roles and responsibilities, the legal relationship between each party and the business and more.
For example, one party may only desire to be an employee in the business whilst another a shareholder. All of this is informed by their respective why, as one party for example may be more passionate about the business than the other and this must be captured in the legal structure of the business accordingly otherwise it can be one of the contributing factors to the idea being a disaster down the line.
- How do you protect yourself legally, when starting a business with a partner or a spouse?
If you have decided to take the plunge and go into business as spouses, first thing to look at and consider is your current marriage contract. Are you in a customary marriage, married in community of property or out of community of property. Each of these will have different legal implications and will form the base of how you approach even the legal structure of your business.
The second consideration is to ensure that you establish a separate legal entity for your business. Regardless of the type of marriage contract, it is never ideal to conduct business in your personal capacity. It is advisable to register an independent legal entity so as to be better placed in managing the assets and separating the liabilities of the business from those of the family. Putting all the eggs in one basket so to speak can spell disaster for family finances.
For any two individuals going into business together, signing an agreement between them is the best thing they can do. This is imperative to outline the terms and conditions that will govern the business relationship. Depending on the nature of the business this agreement can be in a form of a Founders Agreement, a Pre-Incorporation Agreement or a Shareholders Agreement or any combination of these. Having such agreements in place prevents business-related disputes between co-founders (partners/spouses) and addresses unforeseen events.
Some of the factors that you must ensure are covered in such agreement include:
- Roles and Responsibilities
- Financial / non-financial contribution by the parties
- Decision-making process
- Dispute resolution process
- Dissolution of the business or exit by one or both parties
Having signed agreements in place may not prevent disputes and problems but they provide a roadmap on how these are to be dealt with at the point if and when they arise.
- What are your 5 top tips for someone who is considering getting into business with their spouse? Should they have a certain kind of personality?
It is my view that the following personality traits will give spouses greater chances of business success:
Self-Awareness – before they are spouses and business partners, they are human being’s imperfect in nature. For a spouse to make a good business partner would need to be aware of their strength and weaknesses for example. They would need to be clear about their conflict handling skills as they would have to deal with this quite effectively if they are to succeed. Awareness of risk appetite by the respective parties will also be key. Being in business means taking risks at any given time and the self-awareness of this and how to balance between them for the sake of the business is necessary for success.
Common Values – the parties would need to be bound together by a vision bigger than themselves. A set of values that they both subscribe to which will be their guide when business disagreements or other situations come that they do not see eye to eye.
Good Communication Skills – assuming they already have this trait for their relationship, they would need to be even more intentional about being an effective communicator. Some of the typical destructive methods of communication often found in marriage like sulking, giving each other “silent treatment”, bursting out in anger etc will not be constructive in a business environment and therefore would need to be worked on.
Flexibility – just like in marriage, business is a game of give and take. So, the people who will most succeed are those open to see things from the point of view of another and if needs be are willing to compromise their position for the sake of the good of the business for example. If you are a person who is full of pride and is always driven by personal ego, it would be hard for you and your partner to succeed in business and your business may suffer as a result.
- What happens when a breakup or divorce is involved and you’re already bound by the business partnership?
Is there a seamless way to get out of it? What is the legal way around it?
No one goes into marriage (hopefully) with an intention of exiting. When you are going into a business relationship, even with your spouse, however it is most advisable to do this thinking with the “end” in mind.
What happens if everything comes to an end? Even if the reasons for it coming to an end are amicable. It is important to always map out at the start of the business relationship how it is going to end.
If there are no agreements in place outlining what happens in the event of a divorce or break up, as you can imagine the situation gets very complicated. The complication may start even at the point of establishing the legal nature of the union between the parties.
Was it a customary marriage or a civil marriage, in community of property or out of community of property? In community of property is a marriage where the assets and liabilities of the parties are joined together. Out of Community of Property is where each party retains ownership of their respective assets and liabilities. If the parties have registered a separate legal entity for the business, the complications may be minimised as the assets and liabilities of the business would be separate to those of the individual spouse. The signed agreement would them outline how the assets of the party arising from the business will be dealt with and distributed.
In the absence of agreements and separate legal entity structures that clearly separate the assets and liabilities of the individuals from those of the business, the business can be held hostage and not be able to continue operating simply because the founding partners/spouses are involved in a divorce/break up dispute.
One of the ways of avoiding the risk of such complications is to have a clearly drafted shareholders agreement. It is important to note that there may be situations where the parties break up their marriage but keep the business. Whether or not they are keeping the business the manner is which such an eventuality will be dealt with will be outlined in the shareholders agreement.
The Shareholders Agreement ought to ideally cover items such as the process to be followed for the valuation and sale of shares if one party wants out. When the emotions are high during break ups, agreeing on the value of the shares is likely to be complicated if not impossible hence the importance of being proactive in addressing such potential legal issues before they arise.
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Zama Mkosi is a qualified business and lawyer, with over 25 years of experience in business law, and business development funding and is the CEO/Founder of multiple businesses including Mkosi Inc. – a specialist provider of Legal and Business Advisory Services.