Starting a business

09/02/2007

Yorkshire people should not be blinded by Valentines Day hearts and flowers and need to think hard before starting a business with their lover, says a leading national law firm.

Irwin Mitchell, which has offices in Queen Street, Leeds, says many romantic partners do run businesses together successfully for decades and it would certainly not automatically advise others against doing so. There are, however, practical issues people need to consider before extending their personal relationships into business partnerships, no matter how right for each other they think they are.

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Helena Jones a partner in the corporate law team with the firm, said: "You need to be careful about the precise arrangements you put in place when you set up a business with your romantic partner, as there are particular issues that can arise if the personal relationship goes wrong.

"Especially on Valentine's Day, when you're deeply in love, you probably can't see this happening and don't want to think about it, which is understandable. But the reality is many relationships do hit the rocks and you need to ensure your interests are protected if that should happen to yours.

"You're very unlikely to want to continue working together if the romance finishes and an already difficult position is therefore very likely to become even more complicated by arguments over the company."

Mrs Jones said where relationships went wrong, one or both partners usually wanted to remove the other from the business so they could continue it on their own. One party would sometimes even try to bully the other into relinquishing control of the company or would set up in competition, taking customers, assets and information with them unfairly.

Outlining circumstances often applying to businesses run by romantically-linked partners, she said: "It's common for such firms to be incorporated, to protect against bankruptcy, and for the shares to be divided between the partners in a way which saves tax. This is especially prevalent if significant dividends are expected or one of them is a higher rate taxpayer, for example."

It's also widespread practice for both partners to be appointed directors or the shares to be divided evenly, to reflect the equality of the personal relationship, and for the partners to draw salaries and dividends, with non-business expenses also being paid from company funds.

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In addition, Mrs Jones said the parties would often not make equal contributions of money or effort to the business, with one partner perhaps having another job or being responsible for childcare.

She said: "All these issues can be sources of friction if the personal relationship goes wrong and can be especially difficult when mixed with the emotions that always run high at such a time."

Mrs Jones said agreements between the partners at the outset regarding ownership, control and profit-sharing were crucial in determining their entitlements following any relationship break-up. Often, however, these understandings were not committed to writing and former partners almost invariably then disputed what had been agreed.

She said disputes between directors or shareholders were often very technical and required advice from business law specialists, rather than family solicitors - who often also needed to be involved after relationship break-ups - if they were to be handled effectively.

Mrs Jones added: "The best time for Yorkshire people to consult a business lawyer is at the outset of the commercial venture, as they will be able to advise on ways of keeping the mess to a minimum if the relationship goes wrong.

"It's not a case of us saying don't go into business with your romantic partner, especially at a time of year when love is in the air. It's just that it's always common sense to protect yourself against the worst, even if you cant imagine it happening, and that applies to this kind of situation as much as any other."