Most small businesses do not bother to have agreements in place that address the myriad of issues that come up between the owners in every business setting. If you operate as a corporation or LLC, and there is more than one shareholder or member, you face the prospect of a world of pain if you do not have good structural guidelines in place. The pain can take the form of hurt feelings, sleepless nights, and beaucoup lawyer fees. It is always cheaper to put a good business structure in place at the outset, rather than paying lawyers down the road to untangle the mess. In the corporate world, the structural document takes the form of a shareholder agreement, stock redemption agreement or cross-purchase agreement, or some hybrid of them. In the LLC world, you need a good operating agreement. Partnerships need Partnership agreements.
Before you sit down with your lawyer, sit down with each other, and at least try to hash out the issues. You may not have good working solutions to many of these, but it is good to get the concepts out in the open. Then, you get a good business lawyer. That is what we do—we help you flesh out structural options. Here, then, are twenty big picture issues that every multi-member business should ponder:
- What if one of you dies?
- What if one of you wants out?
- What if one of you wants to sell to a third party?
- What if you stop liking your partner and want her gone?
- How do you determine the price of your respective interest?
- What if you can’t agree on the price?
- Is it clear what each of you are supposed to do?
- Who funds the business if it falls short of cash?
- What if your partner can’t fund?
- Who can bind the business to loans?
- How much company money can your partner spend without your blessing?
- Who can sell assets?
- Who gets to make big picture decisions?
- What if there is a stalemate on decisions?
- Where will the money come from to buy back your partner’s stock from his estate if he dies?
- Can your partner compete if she leaves?
- What does “competing” look like?
- Who can hire and fire?
- How do salaries and dividends get determined?
- What happens if one of you is disabled?
Call me now (561) 220-2528 and let’s sit together and talk these things through. Time spent now is pain avoided later.