Settling up a business or working with people you have a personal relationship is not uncommon: friends, boyfriends, girlfriends, married couples have been working together for years. It makes sense: you are unlikely to fall out; you know a great deal about them; and you trust them, so is there any need to put anything in writing?
In practice, it’s probably even more important to have contracts, policies and procedures in place if you have a close relationship with your employees or business partners. If we take a GP’s practice for example, these are often set up as partnerships between two or more Doctors who know each other well. If a partnership has no written agreement in place, then the default position is found in the Partnership Act 1890 (yes we still use legislation passed in the 19th Century). If there is a falling out between partners, then this legislation allows the partnership to be dissolved without notice and assets can be forcibly sold. It also means that any GMS or PMS contract the practice has will be severed. If a GP subsequently wanted to set up independently, or with different partners, he or she would have to start the whole application process over again.
It is potentially worse if the personal relationship is with an employee. A common practice when you employee a friend or partner is not to give them a contract of employment and allow them to work whatever hours suit them. What happens though if there is a dispute over pay or you want to dismiss them? Well if there are no contracts in place, you would be unable to rely on any code of conduct or company rules to protect you and your business. Also if there is no contract and they bring a claim against you, the employee can be awarded 4 weeks’ salary just for failing to give them a contract. For something so simple, is it worth exposing the business to this kind of risk?