As an entrepreneur, you likely surround yourself with interesting and equally innovative individuals who are excited at the prospect of a new business venture. However, there are several considerations to make since money tends to complicate even the closest of relationships. To preserve your friendships and future family reunions, there are simple steps you can take to avoid potential legal disputes.
Business Formation
The type of business you form will depend entirely on the goods and services you want to offer and the number of people involved. Limited Liability Corporations (LLCs) are a common business formation for groups and individuals that want to protect themselves and their personal assets in case of potential litigation. Forming a standard business partnership is still possible, but those who prefer LLCs usually do so for the flexibility and protection it can provide.
Creating a Solid Comprehensive Operating Agreement
The most important part of starting a business with anyone is creating a comprehensive operating agreement. An operating agreement is a legal document that clearly defines the rights, responsibilities, and obligations of each member in the LLC. It needs to include information about how the business will be managed, how the profits (and losses) will be distributed, and procedures for making decisions big, or small. The agreement should be clear and concise so that when disputes arise, guidelines are already set in place to eliminate confusion.
Dispute Resolution
A comprehensive operating agreement should also include a dispute resolution clause. Disputes are an inevitable part of business, whether with clients, customers, or business partners. It’s impossible to agree on literally everything that running a business entails. A dispute resolution clause will give the framework for settling disagreements and leave little room for costly litigation further down the line. The disputes can range from daily task assignments to something more complex like whether or not to make a major investment or incorporate a new product. With more complex matters, the dispute resolution clause can carve out mediation or arbitration procedures to ensure minimal risk for everyone involved.
Choose the Right Partners
This may be one of the most challenging aspects of forming a business with partners. Most individuals like to believe that they have the capability to assess someone’s character, but some individuals simply buckle under the very real pressures of running a business. Even if your friend or family member has a fantastic idea and can contribute in ways that will benefit your business, if you already know that they cannot handle certain situations, it may be better to contract their work after the business has started or severely limit the access they have to your most important business assets. It’s admirable to want to avoid hurting someone’s feelings, but it’s still important to do what is best for you.
Avoid Online Legal Services
Online legal services are really convenient and they make it easy to get carried away and quickly establish a legal business relationship without covering all the bases. DIY legal services cannot give you and your business partners guidance or advice on the best business formation, and they will not have your best interest in mind. Working with qualified attorneys will give you personalized service, and their personal experience can help you avoid disputes you may not have even anticipated.
Our firm has a tremendous amount of experience working with entrepreneurs just like you. Before creating a business with friends or family, consider gaining valuable insight from our team. For a free consultation, contact the firm of Albright & Lumpkin, PC, today.
Albright & Lumpkin, PC
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