All project which is begun and involves different enterpreurs or businesses demands the safety of a good partners’ pact.
Why do I talk about safety? Like society statues dictate a business’ rules, a partners’ pact ensures the smooth working of the relationship between the pals and with the business.
At the start of a project everything is illusion, energy and good mood. We focus our efforts in achieving a good team to push forward a business idea. All goes smoothly, the vision is clear, the hardest decision as been taken: startign the project.
During the first months of a business’ life there are successes, decisions are taken, strategies are though over, and, as a result, they can affect the roles or implication of the pals.
Having a partners’ pact regulating goals and coditions which will rule over the relationship between the enterpreurs is safe-line for the success of any business.
I’m going to talk in an overall manner about how to shape a good partners’ pact and its main clausules.
What can a partners’ pact avoid?
To begin with: you must expose the possible situations & problems which can pop out to avoid future conflicts which may risk the business’ continuity, such as:
New partners or investers’ entrance
The team believes that one of the members isn’t dedicated enough like the rest of the team.
One pal wants to quit.
Different aims regarding the project’s course.
Changes on the business plan or strategic decisions.
No-return situations amongst pals or business failure.
Take the necessary time: let the pals be conscious of the document’s importance and leave some settle basis is important because it brings upon tools to face these situations.
What clausules are important for this pact?
1.- Business management
The pact must set how the business will be managed like, which reinforced groups will be pact to take council decisions, committee or joint.
It’s also usual to put limits on budget approval.
2.- Asset distribution
It’s one of the most troubling spots in a young business and those of quick growth. They’re settled in time, were the business to be successful, which ammount and in which conditions they’ll be handed out, which resources will be re-invested and which non-mandatory reserves will be used up.
3.- Adquisition clausule based on performance
You can set goals based on earnings or any other quantificable goal to manage to increase participation in the society.
4.- Start options
It’s important to draw all scenarios and or start goals. The very business model depends on this clausule.
5.- Blocked situations: Andorra clausule
If the business can’t take decisions because of lack of pact between the pals and doesn’t go by the set reinforced groups, then it must be devised when a blocking situation will ensue and how they’ll solve it. The Andorra clausule usually is the last exit resort. When the differences can’t be negotiated, a partnet can leave setting a price to his assets or participations and the others will decide if they buy that price or if they sell all of their assets or participations at the same proportional price: in that case the partnet would be obliged to buy without protest.
6.- Remaining group rights: score and redemption
These righs, typical of the Spanish regualtions, mean that the preference goes to the pals on the adquisition of assets or social participations. If a pal has a buying offer, they’ll have to offer their asset package to the others (or to the company) beforehand so that they can buy it on the same conditions of the offer (score right) or, if they don’t, the others can act agaisnt the buyer to regain that additional package returning to him what he’s paid (redemption right).
7.- Safeguarding clausule
It will allow that, where some clausule in the pact to be declared null, implicate the full cancellation of the pact.
The Partners’ pact must gather the commitment and dedication of the involved pals, which is why it demands exclusive permanence and dedication of the enterpreurs which will work on the society during a minimum time space (limited from 3 to 5 years).
9.- Drag along & tag along:
The drag along clausule protects the main pal, because it grants them to right to “drag along2 the others in an operation where assets or participations are sold: so as to say, can force the minor pals to sell their participations or assets along with them. That allows them that, were a buying offer to exist, to have a exit happen in the same terms for all pals.
The tag along clausule protects the minor pals: it guarantess them that they won’t be “alone” faced against the major pals’ exit, since they gain the right to “tag along” the main pal if they sell their participations or assets. In short: they can force those assets or participations to be sold in the same condtions in which they are offered to the main pal. One of its goal is to de-motivate the earlier selling of the business.
Of course: the pact terms’ can be revised and modified via an accord of the parts. Setting up a full partners’ pact is important to avoid future conflicts or to make sure each pal clearly knows the rules managing the work and activity of the society.