How can I future proof my business from start up?

Consider this. You set up a fledgling company. You work hard. You meet the person of your dreams. The company grows. Your accountant’s attention turns to tax planning. You move in with said soulmate. You marry. Accountants advise you to appoint said soulmate as employee for “tax” reasons. You’re advised to gift shares to said soulmate. You appoint soulmate as director or company secretary. Soulmate turns into soulless and you separate. What next?

Without clear agreements in place it is not uncommon for one party to ask the court for help to divide the available assets within the context of divorce proceedings. Since corporate interests are treated as a resource of one or both of the parties under section 25(2)(a) Matrimonial Causes Act 1973 (MCA 1973) the court can utilise it to achieve a fair outcome. At first the key is to establish the value of the business before deciding how the asset is treated in the eventual settlement.

If you listen to one piece of advice it should be this: always focus on asset protection at the outset. A well drafted shareholders agreement will regulate the relationship between shareholders, record how the company is run, how shares are owned and what happens when things go wrong. Whilst we don’t have a crystal ball, we do have mirrors that should encourage you to reflect, at the incorporation stage, what difficulties you might encounter as a business owner. Many of us become enveloped in a bubble of positivity at the outset of a new project or at the new beginning of a relationship that we don’t imagine the shine will fade from and reality bites.

Without a shareholders agreement disputes are less easy to resolve and if insufficient detail is recorded within the articles of association you will quickly learn that by the time a relationship has broken down it is too late to turn the clock back to take pre-emptive steps, leaving you with only reactive options.

When talking tax with your accountant, test the end point of the advice rather than the immediate discernible fiscal benefit. Ask about the worst case scenario, consult with a corporate lawyer and always consider if it is necessary to look at additional protection by way of a pre or a post nup agreement if you marry.

Julie-Ann Harris, Partner – Head of Family, Coffin Mew.