Opening a new business is always a challenge. The thrill of creating something of value is both exhilarating and terrifying. Many budding entrepreneurs chose to start a new business with a friend or family member to share the risk and responsibilities of start up, and for financial and emotional support. All good reasons. However, what started out as friendship oftentimes ends in war when differences arise. Smart business planning demands that partners prepare for the worst before the worst presents itself. Here are some tips:
First, Prepare for the breakup in advance.
A business partnership is like a marriage. Get your prenup done before you get married. Trust me, a good partnership agreement addressing what will happen in the event of a break up is priceless.
Next, Keep your emotions out of it.
Business is business. Letting your emotions overrule your good judgment is a critical error. Relying on the advice of a good business attorney even when your emotions may pull you in a different direction is critical.
Craft your Operating Agreement
The operating agreement is the document that dictates how the business will run, how managers will be elected, how profits will be split, and what happens where there is dissention in the company. A well crafted operating agreement can solve many problems. Again, the advice of a good business attorney is essential.
Execute a Buy/Sell Agreement
The buy/sell agreement gives the partners control over their future. The document sets forth a right of first refusal if ownership interests are offered to third parties, and sets for the terms and conditions for buy out of ownership interest if a partner dies, divorces, or becomes incapacitated.
Have the hard conversation now, while the partners are getting along. It is always difficult to have these discussions, but you will be so happy you did if anything goes wrong in the future.
The attorneys at Kalicki Collier have over 50 years of experience helping clients address these matters. If you are starting a business, or already have a business but have not addressed these issues, please give us a call so that we can help you solve these very important issues. This is Jamie Kalicki of Kalicki Collier, where our attorneys collaborate and innovate to help your business succeed.
As always, we are offering a free estate plan review, please contact us. 775.852.2600