You’ve had a knock-out business idea with your bezzy mate. You agree to go 50:50 and conquer the world.

Of course you do. You’re best mates, never going to fall out. Always be fit and healthy. It’ll be a breeze.

But what if…

  • One of you doesn’t pull their weight.
  • One of you wants to take more out of the business.
  • One of you doesn’t like that idea and becomes difficult.
  • One of you becomes seriously ill.
  • One of you wants to change direction.
  • One of you is always charging meals and drinks to the business.
  • One of you breaks the law.

All sorts of things can and will happen. Maybe not something from the list above. Yet it will change from where you set out. Simply because people change, especially when money is involved.

So, what should you do? Understand where you are and where you need to be. As 50:50 shareholders you share the spoils evenly, but what about the responsibility and the risk?

If you are both directors, you both share all the risk. There is no limit to your liability – though you can protect yourself. It helps to understand the 7 statutory duties from the Companies Act 2006. Not an easy read but do a web search and you’ll find them. They are not so easy to apply and care is needed.

You’ll meet lots of business owners with companies that will tell you that you can ignore it all. They are the lucky ones who have never had anything go wrong.

When it goes wrong if you don’t have the right procedures and records in place, you may be liable for the debts of the company. That means your house, car, pension and the clothes on your back are up for grabs by an Insolvency Practitioner to pay company debts.

You should also consider a shareholders’ agreement. That can set out how you deal with disputes, how to deal with illness and death of a shareholder, how to buy each other out or bring in new money.

What if you are 51:49 – is one of you in control? Not really. Certainly not where it matters. The Companies Act, your memorandum and articles and the shareholders’ agreement will set out how decisions will be made.

The Companies Act sets out the baseline rules and procedures. Even for companies with only one director and shareholder. If you have a partner (married or not) and children you need to think about what happens if you aren’t there – these things can help.

The Memorandum & Articles of Association is the internal rule book. How to vote for directors etc.

The Shareholders’ Agreement is a private contract between shareholders and the company on how the practical issues of running the company will be dealt with.

Protect yourself and your mate, learn about being a company director.

Oh, and insurance? Well that depends on what policy you have…