Does Your Business Need a Prenup?

In Canada, for every 10 couples that walk down the aisle, 4 of them will not make it.

If you and your spouse have differing visions of the future or can’t stop fighting, we have legislation and case law in place to decide exactly what happens next- how is property divided, how much child support is awarded, how is custody dealt with etc. Because there are such clear rules in place, most people don’t think about having a prenup unless they have substantial wealth before marriage.

In contrast, around 70% of business partnerships fail. Those are not great odds! Yet, the law says very little about what happens when a partnership fails. There is legislation which deals with some of the formalities of ending a corporation or a partnership but what if you just don’t have the same vision for the business or your business partner doesn’t pull her weight and you want to buy her out? Then, I’m sorry to say, you are on your own. The law thinks that as business people, you have arranged your own affairs.

I can hear some of you saying- “What if it’s obvious that my partner needs to be thrown out of the company? What if they’ve stolen money and not showed up for work for 3 months? Surely the law has something to say about that.” Nope.

If you are the majority shareholder you may be able to remove the jerk as a director of your corporation, but the only way to stop someone from being a shareholder is to buy his shares. I worked with a client who had a nightmare of a co-owner. His business partner used corporate funds for luxury vacations and fancy dinners and went missing for weeks on end. My client did not want to go to court over the embezzlement; he just wanted not to have to deal with his partner anymore. He ended up paying almost 2x the real value of the shares just to be free.

A well-crafted partnership or shareholder’s agreement can set out exactly what you expect your relationship as co-owners to be. Most importantly, it provides a clear exit plan if things don’t work out so you can exit gracefully and without imploding the business and your finances.

For more information about how your business partnership can beat the odds, visit The Happy Partnership.

Share this post

Share on facebook
Share on twitter
Share on linkedin