Once you get into your 50s and 60s, life is all about attending marriages and funerals. Similarly, in businesses, you would see more breakups in partnerships but life would go on for those still alive. Just like marriages, some partnerships do tend to break down due to so many varied reasons.
In the first place, couples normally get married because of love. Love of the heart, love of the money, and love of the parents (arranged marriages). Men have proven that they have a larger capacity to love more than one woman as can be seen from them having more than one wife while women are more specific as to the reasons on why they marry. Macam-macam as they say in Malay. In a sole proprietorship, life is simple and straightforward. You make all decisions and you sign everything. But you are liable for all liabilities and all legal matters. In professional partnerships, all partners are liable and as such the partners will have to spend a fair sum buying liability insurance. Each firm have their own unique shareholder/partnership agreement.
For private limited companies, before the amendment to the Companies Act in 2016, there is a requirement of having a minimum two shareholders and two directors. So for sole proprietors like me having to set up private limited company with limited liabilities, it was normal to appoint my wife as a director with one share. My wife would have to sign all legal documents, bank matters, director’s resolution and final accounts. Thankfully, I have a wife who understands the necessity of such chores and she has supported me blindly all these years, so to speak. Sign saja la, they say.
There are many types of partnerships who start off as a private limited company. This is due to the fact that it has a limited liability when sued. Limited as to the total net worth of the company, shareholders do not have to fork out additional capital if the company goes broke unless as a director or shareholder, you signed as a guarantor to any bank loans, share sale etc.
Setting up a new company is easy. Partnerships normally start off as a bright idea or a good investment. When a group of interested investors invest in a new set-up, everybody start off with great optimism. Most of the time, there is no proper shareholder’s agreement done and the company secretary will just issue a standard copy of M&A or Memorandum of Articles and Association.
Nobody expect problems to appear anytime soon nor in the future. This company will make a lot of money and all shareholders will get annual dividends and everybody will be happy and smiley. Since we are all friends or relatives or family, we can overcome all problems by just meeting up and having a fruitful discussion. Semua masalah boleh kaodim.Nothing is further from the truth. Human shareholders suffer from the seven deadly sins of partnership investment. They are greed, lust, pride, envy, wrath, sloth and gluttony.
When the company does well, greed instincts amongst certain shareholders take over. From asking for more pay because I contribute the most profits to asking for more dividends at the expense of reinvestment to increasing your shareholding’s at the expense of others etc.
Lust for power has been the downfall of many partners or many shareholders. It gets bad when many operating shareholders try to build their own power base within the organization. No explanation needed.
Wounded pride is another common problem afflicting operating shareholders. If the partner’s ego grows in tandem with the company’s growth, it is just a matter of time when the other shareholders with a majority will deflate his/ her ego in a shareholders meeting.
Envy is the most common problem amongst partners. It is the source of all office and boardroom politics. Whenever there is a major dispute, the matters will never be resolved if there is an injured victim who feels that he/she has been aggrieved. Nobody will truly understand the extent of the wrath that this person can inflict upon the company. It is advisable to remove this person immediately before he/ she destroys the company.
Sloth in this case refers to apathy, to failure of the shareholders to do the right things that one should do. Whenever you see big trouble amongst shareholders looming, one should be proactive to do what is right before it becomes a major issue that will never be resolved.
Gluttony can be interpreted as selfishness, placing one’s concerns with one’s own impulses or interests above the well being or interests of others. How many time have one seen an operating partner indulging in their own interests and not for the company?
Many partnerships/ shareholders would have experienced such sins happening in their organization. When you can identify these sins early, then most problems can be solved. If you have a combination of these sins happening all at the same time and amongst different shareholders, I guarantee you that there will be no solution. Deadly sins.
My recommendation for you will be to sell the company, dissolve it (self liquidation) or major operating shareholder buying out every other shareholder. There will be a major fight as all shareholders now start to look after their own interest and only the company staff will suffer. Uncertainty and irregular instructions from directors and shareholders will demoralise the team.
As the value of the company is tied to the performance of the company, it is in the interest of the warring shareholders to argue and fight outside the company. Just as a marriage breaks down, the children should not be collateral damage.
To reduce future partnership problems, my advise is for all shareholders to agree to a shareholders agreement that covers all eventualities caused by the deadly sins. Minority shareholders should also protect their interest in the M&A especially on reserved matters.
Just as in weddings of rich kids and celebrities nowadays, it is trendy for them to sign a pre-nuptial agreement. This is because rich kids have rich parents who have experienced the peculiar sins of partnerships in their business life. Wealth problems, rich solutions. Mereka boleh.