Business With The Partner: How To Reach Success And Not To Lose Everything – Corporate/Commercial Law – Ukraine – Mondaq News Alerts

Posted: December 26, 2020 at 3:57 pm


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Are you about to start a new business in partnership with the family, acquaintances or third-party investors? Or have you already "got burned" on some joint business. This article is a short guide to the essential components of a successful partnership.

What is considered to be better: to organize a new business by yourself or together with the partner? This question is asked by everyone who decides to enter the path of entrepreneurship.

If you talk to experienced business people and listen to their opinions, the answers you will receive will be the opposite. Someone will say that due to the partners, their ordinary business reaches unprecedented heights. Someone will in any way dissuade you from doing business with others, even if they are your friends or relatives.

But statistics give us unbiased numbers: 70% of partnerships fail, but at the same time, 2/3 of the world's largest companies have two or more founders. Therefore, let's take a closer look at the institution of business partnership.

Several partners can contribute to business much more than one person. Knowledge, abilities, skills, assets, money, real estate, brands, technologies all this the company receives not from one, but two or more partners. These are the main advantages of a business partnership.

Partnership, among other things, is a union of different people with different characters, different temperaments, visions for business development. Disagreements between the partners on how to do business; share profits; what each partner contributes to their joint business; which partner is responsible for the particular parts; what product we are developing; etc. - all this often leads to "internecine wars". As a rule, such wars result in collapse for the partnership and business in general. Significantly, a joint business's disadvantages can be grouped into the same categories as its advantages.

Partnerships should not be taken irresponsibly. These are close people who often become partners. And if any conflicts arise in business, they destroy not only business but also personal relationships. As in the family, you need to constantly find compromises and respect each other in the partnership. Only then the expected synergistic effect of the partnership will be achieved.

We will not give a detailed analysis of the psychological and personal aspects of successful business partnerships. This article will focus exclusively on legal mechanisms.

We do not stop underlining a partnership agreement's mandatory presence, meaning agreements "on the shore." It allows you to configure all aspects of the future company. The entire civilized world uses a similar tool. You may come across different titles: corporate agreement, shareholders agreement, stockholder agreement. The essence will still be the same: this is a document that regulates relations between the company owners.

Even before the concept of corporate agreement appeared in Ukrainian legislation, the owners of non-resident structures, while registering them in such jurisdictions as Cyprus, Great Britain, the United States, had already entered into mutual partnership agreements, guided by the relevant legislation.

If we talk about the content of the partnership agreement, it should be complete and detailed. It is necessary to formulate all issues the partners have agreed, especially those that may result in problems and disagreements in the future. You can't leave any of these issues for later. Practice shows that precisely such cases later result in conflicts. Besides, it can be problematic to make changes to an already concluded agreement.

The content of partnership agreements can roughly divide into three broad sections.

In addition to the sections described above, the partnership agreement shall foresee the company participants' responsibility. Such responsibility may consider the fines, deprivation, or reduction of a share, an obligation to transfer one's share. The mattes of mandatory transfer of share are especially relevant in Ukraine when a partner goes into politics or government service, as this entails corruption and reputational risks for the company.

Finally, we once again underline the necessity of concluding a partnership agreement for joint business ownership. And if we are explicitly talking about Ukraine, we advise to conclude a corporate agreement and notarize it. We wish you all long and mutually beneficial business cooperation!

Originally published 1 October, 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Business With The Partner: How To Reach Success And Not To Lose Everything - Corporate/Commercial Law - Ukraine - Mondaq News Alerts

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December 26th, 2020 at 3:57 pm

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