Considering going into business with a friend, but....

MudPuddles

I am considering going into business, setting up a new company with a friend, somone I trust and have known for a while, but I want to avoid potential future problems - we both have different ways of looking at things, which I think could potentially lead to difficulty! At present, we are planning on setting up as just two directors - there would be no other officers and no employees, and we would both have a 50% share holding. One of us would also hold the position of Company Secretary.

If a situation were to arise where we disagreed about a particular course of action, and were deadlocked on the matter, what happens? How is this resolved? Does the person acting as Secretary have the deciding vote? I can't find any reference to this kind of situation in any part of the Companies Acts.

I guess an obvious answer would be to take on a third officer, but we do not want to do that for a variety of reasons. Can any one tell me how this is normally dealt with??

jrey1981

I have worked in business with friends - although I made contact with them first as business contacts and then we became friends.

Your different viewpoints can be a benefit, in seeing the potential pitfalls in each others ideas, and you need to look at how to make this a strength rather than a weakness.

As long as you can discuss things rationally and can both be open to compromise, there really shouldnt be any problems.

Perhaps you can agree some method of resolving differences before going into the partnership, which is where the third party idea would obviously be of use.

I am happy to offer my services as a third officer, for a small consultancy fee, whenever you need to consult me!

focusing

I heard of one small business where the 2 partners each owned 49 shares and they gave the other 2 to someone they trusted. Interesting way of solving disagreements.

Remember, just because something is backed by 51% doesn't make it automatically valid. You still have to act in the best interests of the company and shareholders as a whole, and can't act to the detriment of the minority.

You're right to look at these issues now though, rather than when you disagree on something.

MartMax

Company Secretaries don't have voting rights. Only shareholders do, generally speaking.

theedee

The easiest way is paper, sissors, rocks... or alternatively you can just make one the majority shareholder.

Partnerships are difficult at the best of times and can assure you that it will test the level of your friendship.

Its all about give and take i have been in a few partnerships and non ever ended in a deadlock situation but then again my moto is "I dont care how many partners i have as long as they do what there told"....

Hope your venture works out for you...

MudPuddles

Thanks to each of you for your comments. A few responses:

I agree that the best thing to do would be to get a third partner, with say a 2% shareholding to our 49% each or whatever. BUT for us this creates 2 choices we are not happy with. First, we could select someone we know, but in that case we lose impartiality. We also would need someone who understands the business, and in this case neither of us knows anyone that fits the bill. Second, we could pay for a "professional director" (a director in name only, whom would be called upon in the case of requiring that additional vote to break a deadlock) through a firm of solicitors or whatever, in which case we pay big bucks we don't have.

We could split the share balance unevenly (e.g. 51% to 49%) - but that does not solve the problem of internal differences.

My main question though is - exactly how is a deadlock situation dealt with under Irish Law?

My feeling is that there is nothing in law which deals with such a situation, in which case I think we would have to request independent arbitration, e.g. through the courts or ODCE. I think we would both be fine with that, but that seems to be messy and of course it would be costly.

Any ideas?

MartMax

shareholders agreement would be a help in dealing with future disputes.

or, you can have one or two shareholders in the company while having more directors on the board making decision. up to maybe 3, 5 or any number of directors decide in day-to-day business decision. if any decision making is not favourable by the shareholders, shareholders can generally call up a meeting. at unreconcile dispute, shareholders can always remove the directors from boards. leave alone the hatchets.

mart