FAQ: Business

Question: I am planning on starting a business with my colleague. What business structure should I adopt?

Answer: It depends on several circumstances including the type of business you are starting. Ensuring that the initial set up, including the registration and organization of the business is carried out legally and correctly from the outset is fundamental. You are encouraged to contact our office to discuss the details of the proposed business venture in an effort to assist our lawyers and staff in determining the appropriate structure for your business.

Question: Is it really necessary to prepare a business plan in the context of starting my new business?

Answer: While not legally required, the preparation of a business plan is nevertheless a fundamental part of the business start-up process. Preparing a business plan gives one the opportunity to truly think about important matters such as:

• How much money is necessary to invest in the business before going to market (commencing business activity);
• Whether or not bank financing is necessary either for start-up capital or to finance ongoing business administration, payment of salaries, investment in upcoming improvements in research and technology, etc.;
• The financial risk involved in investing in the kind of business; and
• The objectives associated with commencing the business venture and how realistic those objectives are in light of, amongst other factors, market conditions and number of competitors.

Absent a business plan, it is difficult to imagine how much quality thought, if any, one could possibly give towards the proposed business venture prior to delving into the unknown.

It should also be mentioned that, in the event that bank financing is required, a business plan will be mandatory. If this is the case, the financial section of the business plan will have to be prepared with particular accuracy since it will only prove effective if it credibly demonstrates the financing requirements of the business as well as the expected profitability of the business.

Question: My business consists of two owners, and I would like to end my relationship with my co-owner partner for a variety of reasons. What are my options?

Answer: There are many options including:

1. Buying out your partner;

2. Allowing your partner to buy you out;

3. Sale of all or part of the business by the existing partners to a third party; and

4. Winding up or closing the business.

The above options need to be considered in greater detail and with particular focus on the present circumstances of the business. Regardless of the preferred option, the negotiations which will inevitably ensue between the parties will be crucial and the legal advice from our office will be just as vital in order to avoid the pitfalls of ill-advised actions which can jeopardize the preferred outcome.

Question: I run a small business together with partners and want to make sure that my family is taken care of and accounted to in the event of my untimely death. How do I ensure that this will happen?

Answer: The answer depends first and foremost on the structure used to carry on business. If the business operates as a partnership, the partnership either operates with or without a formal partnership agreement. If the business operates as a corporation, the company either operates with or without a shareholders agreement. If an agreement is in place in either case, it needs to be consulted in order to determine whether there are provisions which address the matter of a partner or shareholder deceasing. If no agreement exists then the partners should make it a point of formalizing the appropriate agreement together with legal counsel.

Question: I am considering buying into an existing business. What sort of information should I be requesting from the existing owners?

Answer: Like anything else, the more information available the better. For starters information respecting the legal constitution of the business will indicate whether the business is properly organized and registered. Assuming that it is not, you will want to be reassured from the existing owners that your buying into the business is conditional on their cooperation in ensuring that the necessary steps are taken to correct any deficiencies in the legal constitution of the business. Assuming that we are dealing with a properly organized, registered and subsisting business, we will want to review the ownership structure of the business in order to determine the equity stake of the individual owners. Next, we will want to begin an overview of the financial records of the business, both historical and current that is. Important information can then be extracted such as the:

• Amount of equity currently in the business;
• Value of the assets;
• Accounting of the inventory and its worth;
• Cash flow generated by the business; and
• Estimated predicted future income of the business.

Our office regularly employs the services of chartered accountants and forensic accounting firms as third party agents and as an added measure of service to our business clientele who can be entrusted to analyze the financial statements produced and report the results of the analysis accurately.