In many ways, forming a partnership, LLC, or other company, is like entering into a marriage. Think of a strong business attorney as the officiant, conducting pre-marriage counseling, making sure the parties understand the commitment they are making, and acting as a counselor when disputes arise. Like spouses do, the partners, members, or owners of a business start off with the best of intentions. Unfortunately, often, conflicts arise and sometimes can develop into the kinds of disputes that threaten the health, success, and viability of the company. There are all kinds of possible causes of these conflicts, including issues arising over differences of opinion over the direction of the business, financial disputes, differences of opinion over the management of the business, possible misconduct, perceived imbalances about workload, and disagreements over the meaning of the terms in the partnership agreement or operating agreement.
Before hopping into business together, business owners should work with a strong business attorney to draft an agreement that clearly outlines what their roles and responsibilities are and how any disputes will be resolved. The goal is to manage expectations at the outset and establish a strong framework for operating the business. A strong, comprehensive partnership agreement, or operating agreement, memorializes the parties’ understandings, expectations, and intentions, and hopefully, helps to keep disputes to a minimum. A proper agreement between partners, members of an LLC, or business owners, also outlines the way in which disputes will be resolved, if, and when, they do arise. The proper agreements should minimize disputes and conflict, allowing the partners, members, and/or owners to focus on the business, not on fighting.
Yes, You Need a Good Business Attorney
Having the right attorney assist in drafting the operating agreement or partnership agreement is the key to being confident that the agreement includes and addresses all of the issues relevant to the company and its partners, member, and/or owners. A proper, comprehensive set of partnership, or ownership, documents should help reduce the frequency and intensity of disputes. Discussions with an experienced attorney can help clarify and memorialize the parties’ understanding of their legal obligations to each other and to their customers, clients and if applicable, shareholders and/or investors. Rosenbaum & Taylor, P.C. can work with the partners, members, and/or owners to develop and refine the practices, policies, and procedures that will drive the operation of the business. A great business attorney also helps to manage the parties’ expectations, makes sure the partnership documents and/or operating agreement comply with all applicable laws, rules, and regulations, and helps the partners to clearly spell out how the business will be managed.
Openly Discuss Expectations of Responsibilities and Workload In Advance
Business partners can often avoid disputes centered around an imbalance, or perceived imbalance, in workload by openly discussing their expectations as to which partner will play what role. Business owners hope and expect that their company will be successful and that the overall workload will increase as the business grows. The partners, members, and/owners need to address how they will share the workload and how they will share responsibilities. Doing so early in the life of the company can help avoid resentment that can grow as the business grows, with one or more owners feeling, rightfully or not, that they are shouldering a disproportionate amount of the duties.
Discuss Major Business Decisions Before Committing the Business
Many ownership or partnership documents, and operating agreements, identify the types of issues that require the approval of the owners, partners, and/or members. As companies grow, they are often presented with new business opportunities that were not contemplated, or considered, when the company was formed. These new opportunities often present new issues for the partners, members and/or owners to consider. The partnership documents, or operating agreement, should include a catch-all provision requiring that the owners undertake a formal approval process on matters of the first impression for the company and on matters that will take the business in a different direction, materially change the business’ scope of operations or have a significant financial impact. All of these issues need to be properly described in the relevant agreements, to prevent confusion, uncertainty, and disputes.
Planning for Partners’, Members’ or Owners’ Business Disputes
Each partnership or operating agreement should have a dispute resolution provision. Deciding how to resolve disputes in advance of those disputes arising manages expectations about resolving important matters, such as business management, financial decisions, and allocation of resources. Having that dispute resolution framework in place can help inform partners’, members’, and/or owners’ judgment about how aggressively to press an issue. Not every dispute needs to be resolved through a formal dispute resolution process. The partners or owners can decide that there are areas of responsibility in which one individual partner, member, or owner can be empowered to make final decisions. Alternatively, the members, partners, or business owners can agree that an attorney who is experienced in the matters at issue can be the resource to help analyze and resolve disputes or differences of opinion before they grow into barriers to success in the business.
Is There A Buyout Agreement?
When the company was formed the owners or partners may not have included a provision in the partnership or ownership agreement that addresses the circumstances or conditions under which the partners could buy out a partner or owner, or force out a non-performing partner or owner when that individual refuses to depart voluntarily. It’s not too late to address those issues. If business owners do not have a buyout agreement, or a similar provision, in their partnership or ownership documents, they should consider negotiating to adopt one. The buyout agreement can call for mediation, or arbitration if any disputes arise over its use.
Memorialize Every Agreement and Decision in a Written Record
Partners, members, and owners should consider making it a practice to memorialize their agreements and business decisions in writing. Doing so is advantageous because it requires that the agreement, or decision, is discussed, clarified, and understood by all of the partners, owners, or members and agreed to, as required, by a critical number of them, before it is reduced to writing. Business owners have a habit of working together very casually, making critical decisions without creating any documentation. It is the sign of a strong working relationship that the owners have developed a high level of trust and comfort with each other and believe they can count on each other to keep their word. However, the risk is that when a disagreement arises, as inevitably they do, the decision-makers may have different recollections as to what was said, decided, or meant, on a particular issue. A dispute then arises which could have been avoided by proper record-keeping.
Focus on the Goal
The primary goal is to keep the business going and growing, with minimal distractions, disputes, or disagreements. Rosenbaum & Taylor, P.C. can help partners, members, and/or owners take the steps necessary, in advance, to anticipate disagreements and address them, without the need for a formal resolution process, or a lawsuit. Rosenbaum & Taylor, P.C. can also help the partners, members, and/or owners work through any disputes that have already developed. If an unresolvable conflict exists, Rosenbaum & Taylor, P.C. can represent a party in an arbitration or lawsuit arising out of an unresolvable business dispute
