The Family Shop Chooses a Legal Form
Three siblings in Nassau want to open a small grocery and deli. They have B$45,000 of personal savings between them and expect first-year sales of B$180,000 with a net margin of about 6%. One sibling wants to keep decisions quick and informal, another worries about losing the family home if a customer slips on a wet floor, and the third wants to raise a further B$60,000 from an aunt without giving her a vote. A lawyer has quoted B$1,800 to register a company and B$600 a year in compliance costs; the cost of registering a sole proprietorship or ordinary partnership is nominal. The siblings have no written agreement and have never discussed what happens if one of them dies.
1. Recommend a legal form for the business, weighing liability, cost and control. Justify your choice against at least two alternatives.
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Analysis. The key risks are liability (the wet-floor scenario), the need for outside capital without shared control, and the low margin. At 6% of B$180,000 the business earns about B$10,800 a year, so B$1,800 plus B$600 a year is roughly 22% of first-year profit - significant but not fatal.
- Sole proprietorship fails because there are three owners and because it gives unlimited personal liability, exposing the family home.
- Ordinary partnership is cheap but also carries unlimited joint and several liability; a customer injured on a wet floor could claim against any partner's personal assets. With no written agreement, the death of one partner would legally dissolve the firm and force a reorganisation.
- Limited company gives limited liability, separates ownership from control through shares, and allows the aunt to take non-voting shares or a loan, so she receives a return without a vote.
Recommendation. Register a limited company, and have the aunt subscribe for non-voting shares or lend at a fixed interest rate. Pair this with a written shareholders' agreement covering death, exit and decision-making, and take out public liability insurance to reduce the risk of claims in the first place. The extra compliance cost is justified by protection of personal assets and by access to capital.
2. The siblings instead form an ordinary partnership with no written agreement. Explain two consequences that could follow if one partner dies and one partner wants to leave.
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Death of a partner. Under ordinary partnership principles, the death of a partner dissolves the partnership unless the agreement says otherwise. The remaining partners would have to settle the deceased partner's share with the estate, potentially forcing a sale of stock or equipment to raise cash. The business has no separate legal personality, so contracts and debts may need to be re-formed in the survivors' names.
A partner leaving. With no written agreement there is no fixed notice period, no valuation method for the departing share, and no restriction on competition. The departing partner could demand immediate payment of a share valued by argument, or leave and set up a competing deli nearby. Either event could drain working capital and disrupt supplier relationships.
Lesson. The absence of a written partnership agreement converts ordinary business events - death, retirement, disagreement - into legal crises. A deed of partnership would specify valuation, notice and continuation terms.