So you think your start-up has all angles covered? A cautionary business tale by Grant McCall, Commercial Law Specialist at AMD Solicitors

It is 2010.  Mr Jones and Mr Smith are old friends.  Mr Jones is a talented carpenter who would like to run his own firm but has no money to put into starting a business. Mr Smith agrees to lend Mr Jones £25,000 to help him start his business.  For the time being Mr Smith will also do the paperwork in his own time but, if business gets busy, he will also start to work for the business full-time.

Fast forward to 2016.  Things have gone extremely well with the business.  Mr Smith came to work full-time some time ago.  From a small start the business has expanded to employ 35 full-time employees and extra fitters on a self-employed basis at times of peak demand.  The furniture the company produces is distinctive and recognisable by the finish and its logo. Three years earlier Mr Jones and Mr Smith bought a limited company “off the shelf” as a mate told them this was a tax efficient step to take.   They have always intended to sort things out “properly” but have been too busy to do so. All business decisions are taken by them jointly and all accounts require both their signatures.

It all seems great. What can possibly go wrong?  Here are a few possibilities!                        

1. Mr Smith has a midlife crisis.  When he is supposed to have been with customers he has been gambling at the casino instead.  Mr Jones wants him out of the company. Unfortunately there is no shareholders agreement or Director’s Service Contact in place which would have regulated the situation and allowed Mr Jones to follow an agreed procedure to buy Mr Smith out, possibly at a discounted price and remove him from directorship.    

2. Mr Smith suddenly dies or has a stroke incapacitating him from work.  Unfortunately there is no will or cross-option agreement providing what will happen to his shares in the business and no Power of Attorney enabling the smooth running of the business in Mr Smith’s absence.                                                                                       

3. Mr Smith and Mr Jones discover that  Mr Brown, their longest serving employee has been filling their order  book but also  a  separate one of his own.. He says he will leave but unfortunately there is no restrictive covenant to prevent him contacting his former customers. Indeed there are no employment contracts in place at all. The company has no Trademarks or Registered Designs to protect their brand or trade secrets.

These are all issues that an experienced commercial solicitor can help you avoid by giving you the right advice when you set-up a new business. AMD Solicitors’ commercial lawyers in Bristol can help you get your business off the ground on a safe legal footing with their aim to prepare and protect a business from running into problems later down the line

For specialist commercial legal advice contact Grant at our Whiteladies Road office or by email to grantmccall@amdsolicitors.com  or telephone 0117 9733989.  AMD have offices at Henleaze, Clifton and Shirehampton and offer all businesses a free “legal health check”.   


This article is provided for general information purposes only and represents our understanding of the relevant law and practice as at the date of uploading. This article should not be relied upon as legal advice pertaining to any specific factual situation. Legal decisions should be made only after proper consultation with a legal professional of your choosing.

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