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5 important points that co-founders need to negotiate before starting a business

starting a business

When starting a business with several founders, you need to not only discuss the strategy of conducting and promoting your business, but also some legal issues that will help to avoid conflicts in the future. Rather, it is not so much to avoid as to reveal them at an early stage and to develop an algorithm of actions for their quick and relatively painless resolution. Many lawyers will say that disputes between partners arise primarily from two sources: ambiguity and assumptions. Sooner or later, any partners enter a state of irritability, misunderstanding and confrontation.

Here are five things that need to be discussed and settled before the commencement of the opening of the joint venture …

1. Percentage of ownership

The concept of establishing a new business can be quite simple at first glance, but with the passage of time, the development of the enterprise, the conduct of business it can become much more complicated. Therefore, at an early stage it is necessary to agree what rights each of the founders has and what percentage of the property belongs to one or another organizer. How is this percentage calculated, is it static or can it change over time (and under what conditions)? A related topic is whether the proportion of ownership is proportional to the initial cash contribution of each participant in the process and how the roles are distributed? Does the amount of work performed affect the size of the share in the business and, consequently, the distribution of profits?

2. Amendments to the constituent and executive staff

Life is too unpredictable to be able to plan and count on unconditional implementation of plans. People can leave the enterprise for many reasons: a state of health, loss of interest, constrained financial circumstances, permanent conflicts and misunderstandings, etc. In this case, it is worth discussing in advance what the conditions for getting out of business, what protocol will be withdrawn, whether the system of fines will be implemented, what principles will be used to replace and introduce new members to the management team.

starting a business

3. Decision-making

Any business is connected with responsibility and decision-making. Some of these solutions can be basic (renting office space, purchasing equipment or recruiting employees), and some are routine (for example, tracking daily expenses of an enterprise and purchasing office supplies). When starting a new enterprise, it will be advisable to agree in advance which decisions require the obligatory consent of the other partners (the decision must be taken unanimously or simply by the majority) and which ones are given to the person responsible for them or to someone who will have time to deal with them. It is also worthwhile to think about the division of responsibilities and to assign to each of the founders the scope of activity in which he will take single-minded decisions and for whose functioning he will answer independently.

4. Intellectual property

Any modern business will generate intellectual property (copyrights, trademarks, patents, etc.), and some businesses will produce it unrealistically much. Something will not be of great value, but something will be quite expensive. If your business is connected precisely with the generation of large amounts of intellectual property, which is actually the main goal of the enterprise’s existence, it is worthwhile to think about who will own it and who can claim it and participate in the distribution of profits.

Another point is the original intellectual property. It is necessary to declare the contribution of each of the founders of the company and determine whether this property belongs personally to the founder or the company as a whole (that is, distributed among all participants). Can these developments be used for other purposes? And it will not be superfluous to consider what will happen if the founder who created something decides to leave the business.

5. Competing Enterprises

It is possible that one of the founders will develop parallel business. Therefore, it is very important to discuss in advance the very likelihood of this moment and decide whether it is worthwhile to introduce some rules or conditions on which a shareholder can open another enterprise, and in what sphere this enterprise can or can not function. In other words, it is necessary to be re-insured regarding the opening of a competitive type of business, where the founder can have his own personal interests, which he can put above the interests of the jointly organized enterprise.

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