Business Law


ing things up front T


many different


he start of a new business venture between two partners can be an exciting time, but also a busy one with considerations that


entrepreneurs will have to take into account. One key consideration that often gets overlooked in the rush is ensuring that the partners have agreed the key issues clearly in advance. In these cases agreement is based on very broad, general terms – with each side of the


venture making


assumptions, based on their own prior experience, as to how the details will be “filled in”.


The lack of clear agreement between the partners may cause a breakdown in the relationship further down the line - which at best will impede (and at worst could lead to the failure of) the business.


These situations can be


costly, distressing and acrimonious, and in the majority of cases can be avoided if the partners simply take the opportunity to record clearly and in detail, for example, how each of them expects the business to develop and what their respective roles in the business should be.


The same principle can be applied to any “new venture” that a company undertakes with a new person, whether that is a new commercial agreement or bringing in a new senior member of staff – but is best illustrated by a full- fledged joint venture.


Sticky Fingers Restaurant


In the late 1980s, the Rolling Stones’ Bill Wyman started to look for ventures to capitalise on his musical career. On 1 May 1989 he signed up to a business venture with an experienced restaurateur, Mr. Mitchell. The intention was to establish a restaurant, along the same lines as the Hard Rock Café, where Mr. Wyman’s rock memorabilia


would be displayed. The restaurant


was to be owned by a joint venture company (“SFR”). Both Mr. Wyman and Mr. Mitchell were shareholders in, and directors of, SFR - with Mr. Wyman holding 66 shares to Mr. Mitchell’s 34. On its face, this is a classic joint venture scenario. One party has the expertise and experience required to operate the business, and the other has the cash – or, in this case, the memorabilia and name value - to get the business up and running. Reading the scenario it seems almost entirely certain that the business (meaning both the restaurant and the affairs of SFR itself) would be run by Mr. Mitchell, with Mr. Wyman as the proverbial “sleeping partner” – making his initial contribution of paraphernalia and then taking his hands off of the business.


Unfortunately, the agreement between the shareholders only stipulated that Mr. Mitchell would run the restaurant – there was little detail as to Mr. Wyman’s role.


Differing Expectations


For the first three years the restaurant ran successfully.


Mr. Mitchell ran


the restaurant, as had been agreed, and ran SFR’s corporate affairs. Mr. Wyman, however, did not fade into the background – although he was not involved in the restaurant itself, he did involve himself in some of the decision-making at board level and took an interest in SFR’s books and accounts. As time wore on, Mr. Wyman became uneasy with Mr. Mitchell’s conduct – certain irregularities that he had noticed in SFR’s books began to look to him as though Mr. Mitchell had his “hand in the till”.


Unfortunately,


discussions between Messrs. Wyman and Mitchell failed to address Mr. Wyman’s concerns.


By David Willbe


It was at this point that the parties’ failure to discuss their respective roles in the joint venture became a major issue. Mr. Mitchell had assumed that the venture was to be run on the lines set out above, with him running the business and Mr. Wyman just collecting the cheques. Accordingly he resented what he saw as an intrusion onto what had been agreed to be his territory. Mr. Wyman, on the other hand, saw himself as an involved business partner at board, if not operational, level – not full time, given his commitments as an international rock star, but taking an active role and certainly able to ask questions if he felt that the business was being badly run.


The business


relationship between the men broke down swiftly and irreparably.


Business Disruption


With the breakdown in the relationship between Mr. Mitchell and Mr. Wyman, the day-to-day management of the business became almost impossible. Having already suspected Mr. Mitchell of dishonest dealings, Mr. Wyman felt that his suspicions were confirmed by Mr. Mitchell’s obvious discomfort at having him involved in the business. Mr. Wyman decided that the time had come to find someone else to run the restaurant, and remove Mr. Mitchell. As the joint venture agreement provided for Mr. Mitchell to run the restaurant, this was a decision that could only be taken by SFR’s board. Both Mr. Wyman and Mr. Mitchell had to be present at a board meeting for any decisions taken at such meeting to be valid, as SFR’s


articles of


association required a quorum of two directors.


Mr. Mitchell, knowing this, simply refused to turn up.


Unable to remove Mr. Mitchell at a board meeting, Mr. Wyman (as the holder of two thirds of SFR’s share capital) attempted to call a shareholders’


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