by Aleshia van der Ploeg, founder of VDP Legal Consulting (Pty) Ltd
Every now and then, one lucky, deserving entrepreneur gets their ‘big break’ and with it, the opportunity to go into business with a major corporate. Unfortunately, some are so blinded by their ‘success’ that they don’t properly consider what this new venture may actually entail.
For any new relationship to be successful, it must be built on a solid foundation. The same applies in business – business partnerships must be built on a SOLID LEGAL FOUNDATION. This means that proper legal groundwork must be laid in advance ie: you need to ensure that the paperwork is in order before you proceed.
In this regard you will need to consider:
- Which business structure is best suited to your needs? Will they be purchasing a share in your business? Or will you be entering into a joint venture? Or have you considered a special purpose vehicle (SPV) specifically to meet your needs?
- Each party must be clear on exactly what will be required of them – each parties obligations, powers & duties must be properly recorded.
- Where will your company will get its funding? What is each party contributing initially to finance the company and is it in the form of share capital or a loan (and on what terms). How will any future finance be raised? (Options include each party contributing in proportion to their shareholding, third party funding, bank loans etc) What dividends can distributed, to whom and when.
“Business marriages” as in other types of relationship don’t always last forever. Health concerns arise for partners, some pass away, and people change their plans. Exit strategies must be decided and recorded in advance in order to avoid disputes further down the line… and if a dispute cannot be avoided, it is advisable to agree in advance on how you’ll break stalemates – such as via mediation or arbitration.
As a general rule, it is best to consult with an attorney who can prepare or review the legal groundwork required when going into business with a major corporate. Money well-spent now may save you a lot of money further down the line.
Aleshia van Der Ploeg LLB (RAU) was admitted as an Attorney of the High Court in South Africa in 2006. She is a member of the Law Society of the Northern provinces. She has 10 years post-qualification experience in corporate, commercial, labour and general law. She practised as an attorney and served as a Director before forming her own consulting firm. www.vdplegal.co.za | Email firstname.lastname@example.org
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