Starting a business with a friend can feel like a natural next step. You trust each other, enjoy working together, and have an idea you both believe in. The difficult conversations often seem like something you can leave until the business is making money.

Those conversations are easier while you still agree. Before you contribute savings, sign a lease, or start taking customers, decide how you will own and run the business together. For friends starting a small business in the Comox Valley, Campbell River, or elsewhere in BC, a clear agreement can prevent different expectations from becoming an expensive dispute.

Decide what each person will own

“We are doing this together” leaves a lot unanswered. Will you each own half? Will one person have a larger interest because they are contributing more money, equipment, or an established customer base? Will ownership depend on work someone has promised to do?

Choose the legal structure deliberately. If you plan to incorporate, document the shares each person will receive and the rights attached to them. If you operate as partners, record your respective interests in a partnership agreement.

A partnership can arise from carrying on business together for profit, even without a signed partnership agreement. BC’s Partnership Act defines that relationship. Do not assume you can postpone every legal consequence until you finish the paperwork.

Separate ownership from money put into the business

Suppose one friend contributes $40,000 and the other contributes $10,000. They agree to share future profits equally. Have they also agreed to equal ownership? Will the extra $30,000 be repaid? Is any of the money a loan?

These are separate questions. Record whether each payment is a loan, a capital contribution, or payment for shares. Address repayment terms and what happens if the business needs more funding. Have your accountant review the proposed arrangement alongside the legal documents.

For partnerships, section 27 of the Partnership Act supplies default rules, subject to an express or implied agreement. These include equal sharing of capital, profits, and losses. Do not assume a larger contribution automatically produces the arrangement you intended.

Agree on work, pay, and time off

One friend may expect a full-time commitment while the other plans to keep their existing job. That difference can work, provided both understand what they are agreeing to.

Write down each person’s responsibilities, expected availability, and authority. Decide how you will approve pay, reimburse expenses, and review workloads. Address illness, parental leave, and a prolonged inability to work.

For example, if one owner handles customers and the other manages the accounts, identify who will cover missed deadlines and how you will raise concerns. Also decide what should happen to ownership if someone stops working in the business. Avoid leaving that question until a relationship has broken down.

Set rules for decisions and spending

Agree which decisions each person can make alone and which require approval. Everyday purchases may need a simple spending limit. Borrowing money, signing a commercial lease, admitting another owner, or selling major assets deserves a different process.

If you incorporate in BC, share ownership and management authority are distinct. Section 136 of the Business Corporations Act generally places management or supervision of management with the directors, subject to the Act and the company’s constitutional documents. Your shareholder agreement and corporate documents need to work together.

Make the practical arrangements match the paperwork: bank signing authority, access to bookkeeping records, and control of the website and business accounts. Both owners should understand how money moves through the business.

Plan for a disagreement before one happens

Equal ownership may feel fair, but two equal owners can get stuck when they disagree. Decide what you will do if one wants to expand and the other refuses, or if neither will approve a major expense.

A useful process might start with a meeting and written proposals, followed by mediation. Persistent deadlock may call for a negotiated buyout or another agreed exit process. Choose a process you could realistically afford to use.

Be cautious with a clause that lets one owner name a price and forces the other to buy or sell at that price. Friends with very different access to money may find that mechanism puts one of them at a serious disadvantage. Ask how a proposed clause would work in your actual circumstances.

Work out what happens when someone leaves

Discuss voluntary departure, death, disability, and a proposed sale to someone outside the business. Decide how you will value an ownership interest, who can buy it, and how the purchase price will be paid.

For a partnership of undefined duration, the Act allows dissolution by notice, subject to the applicable agreement. Section 35 is a reason to address continuity and departure expressly.

An exit plan should also deal with outstanding loans, customer work, business records, and guarantees. If an owner personally guaranteed the lease or a bank loan, address obtaining the creditor’s release rather than assuming an agreement between friends settles that exposure.

Put the agreement in place before you launch

Before meeting with your lawyer, prepare a short outline covering:

• What each person will contribute and own.
• Who will do the work and how pay will be approved.
• Which decisions need both owners’ consent.
• How you will fund expenses and handle losses.
• What process you will use for disagreements.
• How someone can leave and how a buyout will work.

A partnership agreement or shareholder agreement should turn those decisions into workable terms. Revisit it when you bring in an investor, change responsibilities, or make another significant change to the business.

Postle Law helps small business owners with incorporation, shareholder agreements, and partnership agreements. If you are starting a business with friends in the BC, book a consultation with Nicholas Postle to work through the arrangements and put a clear agreement in place.