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Going Into Business Without a Shareholder, Partnership and Operating Agreement Is a Bad Business Decision

"Till death do us part." Except when we divorce and spend years fighting over what's yours and what's mine and who gets the kids and the dog. Many of these matters are adequately dealt with a carefully drafted prenuptial agreement. However, the emotional stigma associated with a prenuptial agreement results in very few actually being entered.

That familiar story applies equally to business formation and breaks up. Business partners euphorically enter into a new business venture. Thoughts of long term success and nothing less is all that they discuss. The partners have a willingness to work out all of their issues and disagreements. They figure that will be the case forever. Unfortunately, like marriage, it is not.

The best, and often only, time to think about potential business issues and disputes is before they happen. In order to draft shareholder, partnership and operating agreements that will help prevent issues down the road, it is important to consult with an experienced business lawyer.

Some issues that are rarely considered by laypeople that should be addressed in a shareholder, partnership and operating agreement include:

  1. Management obligations and rights
  2. Financing business operations
  3. Sale of assets and/or shares of the business
  4. Rights of partners on death or disability of the other partner(s)
  5. Rights and obligations to go along or require others to go along with the sale of the business
  6. The right to have other businesses and/or to compete with the business

Absent an agreement, these matters are left to the applicable statutes and common law which rarely adequately deal with the issues. These inadequate remedies further result in protracted and expensive litigation which could be avoided through a well-drafted agreement that resolves the parties' intentions.

Of course, nobody wants to think about problems when starting a business. However, that is the time. Since it should be in everyone's best interest to work through the agreement upfront, the inability to work through the issues upfront should shed light on what problems may occur in the future.

Contact us to learn more about how we can draft shareholder, operating and partnership agreements that will protect your rights if things go wrong.

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