So you want to start a business? You and your brother, sister, best friend, college roommate, or work colleague have come upon a great idea for a business and are ready –in fact champing at the bit – to become “business partners.” You share a vision, trust each other, have complementary skill sets and want to grow this business, help a lot of people and make a lot of money. It’s a slam dunk, right?
Wrong. In addition to the predictable uncertainty of succeeding in any business venture in a competitive market, there is the predictable certainty that you and your partners are not going to always see eye to eye on how to run the business, how to distribute revenues or how and when to sell all or part of the business, to name but a few of the most common differences that crop up between partners in small businesses,” explains Offit Kurman Business Litigation Chair, Don Foster.
So how do you ensure that these differences do not escalate once the “honeymoon period” is over, and erupt to ruin your business and, sever the relationships, many of which have long been held with family and friends. The answer is simple: have a formal legal document that puts in writing how the partners expect the business to run and who is going to run it. Such agreements go by different names, depending upon the form of the business. A Shareholder Agreement, Operating Agreement or Management Agreement identifies respective partners’ ownership interests, quantifies the value of “sweat equity” versus financial equity, identifies management responsibilities, addresses the sale of part or all of the business and defines how disputes are to be resolved.
“Many a good, profitable and viable business has broken apart on the shoals of a lawsuit after things break down between the former best friend/business partners,” says Foster. “They have failed to provide for an inexpensive dispute resolution mechanism in an Operating Agreement and litigation is the only means left short of one side capitulating.”
Although there are operating agreements available online, nothing can really take the place of consulting experienced counsel. Even if it is a brief one-hour consultation, an experienced business law attorney will be able to identify the potential problem areas that should be addressed in a written agreement. As well, this attorney should be independent, with no loyalties toward any of the parties.
If yours is a small or mid-size business and you are interested in learning more about Operating Agreements, Shareholder Agreements and Management Agreements, please contact Don Foster at email@example.com or 267.338.1357. Mr. Foster serves as the Chair of Offit Kurman’s Business Litigation Practice Group.
Offit Kurman Attorneys at Law: Business Law Practice Group
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