From the time of establishment of a business until its ultimate demise or merger, many decisions and agreements will be concluded by the directors. While at the time it might seem that a formal agreement is unnecessary as all parties are “on the same page” and are negotiating in good faith, our experience has shown that there are often underlying issues taken for granted.
These can include:
- The business will continue to be as profitable as it is now
- Factors affecting cash flow will not change
- Fundamental conditions like continuation of property leases will continue
- The parties will continue in good health
- Outside influences, like marital circumstances will not change
- Shareholder control of companies will not change
- Key personnel will remain in place
- Market conditions will not affect asset values
- Products and services will not become redundant
- Tax rates will not change
- Political factors will not affect the business
- Concepts like “profit” are properly defined and unambiguous
- Accounting policies will remain unchanged
- Accounting frameworks will not change anticipated reporting of results
- All parties can afford the transaction
- All parties are acting in good faith
We often assist clients in attempting to make the most of the results of inadequately recorded commercial agreements. Our objective at that stage is to attempt to contain the cost of not committing the original agreement to writing, or paying too little attention to doing so.
In general terms our advice would be the following:
- Establish a principle to commit the terms of all commercial agreements to writing, whether:
- Terms & Conditions of Sale
- Partnership Arrangements
- Leases or Other Agreements for the use of assets
- Any Form of Joint Venture or Profit Sharing Arrangements
- Any Sale of Business or Assets
- Where appropriate, consult us before preparing the agreement. We can give guidance on matters to be included, or prepare Heads of Agreement.
- Instruct an attorney to draft the formal agreement or terms.
- Let us review the draft agreement before finalisation, and discuss it with the drafting attorney. The combined legal and financial experience can be invaluable to you.
Savings can be made in fees paid to professionals at the stage of all negotiations. If you are seeking the best chance of your plans succeeding, and thus protecting your investment, consult us and let us collaborate with your attorney.