Over a series of articles, Oliver King examines some of the traps and pitfalls of operating within a private limited company structure without the protection of either a shareholders’ agreement or bespoke articles of association. Poor preparation of a company’s constitutional documents can lead to disputes and ultimately the business failing.
We, as a firm, are often asked how to resolve an existing dispute between business owners, where there is no documentation in place to govern their relationship, and the honest answer is to jump in the DeLorean and hit 88 miles per hour (kids, ask your parents. Parents, you should get the reference).
Once a dispute has arisen, it is almost impossible to put in place documentation to resolve the same, as each party are likely to be distrustful of the motive behind every aspect. In short, if one told the other the sky is blue, they would look up to check.
Whilst there is no way of pre-empting every possible scenario, and even if a situation has been considered and covered within documentation, there is no way to physically compel a person to, or prevent a person from undertaking a particular course of action, well-drafted documentation can be an excellent stick to wave.
I have mentioned that prevention is better than the cure, and this is very true.
In the same way that you obtain insurance in the hope you will never need it, I live in hope that my documentation will be drafted, approved, appreciated (we all need appreciation), signed and then put in a drawer, never to be seen again.
However, if a dispute does arise, the cost of having documentation in place prior to that dispute will pale into insignificance compared with the cost of court proceedings, and the cost, both monetary and personal, of losing the business you have undoubtedly worked incredibly hard to create.
The moral of the story, is that we are here to help ensure the stability and longevity of your business, together, and that I’m much nicer to deal with than the scary dispute resolution heavies.