Going into business together without writing anything down

Two people start a business together. One has the capital, the other has the trade. They agree on everything that matters, which at the start is very little, and they get on with it.

Nobody writes anything down, because writing it down feels like distrust.

The business then does one of two things. It fails, in which case the absence of an agreement rarely matters much. Or it works — and the questions nobody answered arrive all at once, at the worst possible moment, with real money attached.

The questions that come later

Every one of these is easy to answer at the start and nearly impossible once there is disagreement:

Who owns what, exactly? Not “we’re equal partners” — what percentage, and is that recorded anywhere? Money put in at different times, effort put in at different rates, and a business that grows unevenly all pull against a vague understanding.

Is capital the same as shares? If one person put in the money and the other put in the work, is the money a shareholding or a loan to the business that gets repaid? These are different things with different consequences, and both parties often assume the one that favours them.

Who decides what? Day-to-day decisions, decisions above a certain value, and decisions that change the business fundamentally are three different categories. Requiring unanimity on everything produces paralysis; requiring it on nothing produces one person doing whatever they like.

What happens when it is 50/50 and you disagree? An even split with no tie-breaker is a mechanism for deadlock. There are standard ways to deal with it. None of them can be agreed after the deadlock starts.

What is each person actually expected to do? Full time or alongside something else? What if one stops showing up? What if one is simply better at it than the other?

How does money come out? Salaries, drawings, dividends, reinvestment — and who decides between them. Unequal effort and equal drawings is one of the most reliable ways to end a partnership.

Can either of you compete? During, and after. If one leaves and starts the same business across town with the customer list, was that always permitted?

What happens if someone wants out? Can they sell to anyone? Does the other get first refusal? How is the price worked out, and by whom? Without a mechanism, an exit is a negotiation between one person who wants to leave and one person who knows they want to leave.

What happens if someone dies or cannot work? Their shareholding goes to their estate, which means you may find yourself in business with a family who know nothing about it and need the money out.

Why “we’ll sort it out if it happens” fails

Because it is not a plan, it is a deferral — and it defers the decision to the moment when the two of you have the least goodwill and the most at stake.

Agreeing the exit price formula while you are friends takes an afternoon. Agreeing it while one of you is leaving angry takes months, costs money, and usually damages the business in a way that reduces the thing you are arguing about.

What to do

Have the conversation and write down what you agree. Plain language is fine for this stage — the point is to find out whether you actually agree, which you will often discover you do not.

Expect the discussion to be uncomfortable. That discomfort is the value: it is cheaper to find a disagreement now than to find it in three years with staff, stock and a lease involved.

Then have the agreement itself prepared properly. A shareholders’ agreement and the company’s own documents have to work together, and getting that right is work for a registered legal practitioner, not a template from the internet and not us.

Our part is the conversation before that — making sure every question above has a clear, agreed, commercially sensible answer, so the person drafting the document is writing down a decision rather than inventing one.

This note is general information, not advice on your situation, and it is not legal advice. If you are going into business with someone, or already have and never wrote it down, the conversation is work we do.