When setting up a business, especially with family or friends, it is easy to assume that nothing will go wrong in the future. You assume that as you trust one another you do not need to put in place things like shareholders’ or directors’ or partnership agreements.
Whilst they sometimes consult their own advisers, it’s up to you to make sure that your investment and shareholding documents comply with the law. If you don’t, and things go wrong, you expose your business and possibly yourself to liability.
Why this is a problem: Hopefully nothing will go wrong in the future but even family members and best friends fall out. If the worst should happen you could then end up with nothing and you might face the breakdown of a friendship alongside a costly and acrimonious legal dispute.
If an investor puts money into your business and loses money, they’ll often ask their lawyers to investigate whether appropriate disclosures were given. If they were not, investors may sue – and seek damages.