Starting a business with friends or anyone can be a tricky ordeal. With friends, however, questions that often should be asked do not arise due to the business person’s overwhelming optimism in their idea. This optimism, while seemingly a necessary evil for someone that is starting a business, is something that must be controlled to prevent the business from failing while keeping the friendship from falling apart.
A business person’s optimism often causes them not to ask questions like: what if my co-business owners have a life changing event and need to cash out; who should run the business if one of us dies, what happens if our business goes for many years and one of us wants to retire, and what is the amount at which we are all willing to sell our business if offered by a buyer. The great thing about these questions is that they can be solved in a relatively easy manner by including the procedure for their resolve in the company’s governing documents (e.g. By-Laws, Operating Agreement, Shareholders’ Agreement, etc.) at the beginning of the business’ formation when money may not be the sole underlying reason for decision-making.
the business owners should contact a lawyer as soon as possible. Optimally, a lawyer can aid in the full starting of the business such as aid in negotiating contracts such as leases, vendors, and employment agreements. However, it must be noted that an attorney does not represent any one business owner.
The attorney represents the business and is under a fiduciary duty to make sure that he/she does what is in the best interest of the business regardless of any one of the owner’s actions. Thus, to make sure every owner’s rights are accounted for, the individual owners should also retain counsel for the negotiation of the intercompany contracts, such as the operating agreement for an LLC.
If you are not sure whether you should enter into business with friends, give us a call. We can discuss your options and develop an action plan to ensure you are on the right side of the law.