Ever found yourself thinking, I really, really don’t like my business partner(s) (or shareholders or members, as the case may be)?
It happens far too often. It’s very hard to find a business partner that will click with you for the long term. Having a business “pre-nup” may be a saving grace if the relationship becomes untenable. As a lawyer, I’ve had the privilege of working with hundreds of clients and I’ve heard numerous stories about partners that have done things that just aren’t cool (in fact, some are downright shocking). The problem that so many business owners face is that they don’t have a way out of the business (or they don’t have a way to get the business out of the hands of the other partner(s)).
The reason for this is that all too often that the partners didn’t put together an operating agreement (or the equivalent document depending on type of legal of entity) with buy-sell provisions. Perhaps the partners are relatives (or long-time friends) and therefore they felt such an agreement wasn’t necessary, or perhaps they were cash-strapped and just didn’t have the financial resources to do so when they formed the business or perhaps they just weren’t convinced that it would actually help and/or perhaps they were extremely optimistic and believed that they could just figure it out if they ever decided to “break-up.”
Unfortunately, what tends to happen is that issues fester… Your partner does something and it begins to bug you. And then he or she does another thing and that really bugs you… and well, it escalates from there. I’ll be as blunt as I can be… If you don’t put together one of these agreements and define the “what-ifs” in advance (while everyone still likes one another), life in the business is going to be rough, really rough. You can always quit, but if name or brand recognition is important, you’d be giving that up. Can you force out your partner? Maybe, but it won’t be easy.
It would be naive and downright foolish to suggest that an operating, partnership or shareholders agreement is the holy grail and will solve all of your problems before they happen. In fact, it’s possible that this agreement that you spend the time and resources to put together might actually make things even worse (for example, it could have a non-compete preventing you from doing what you do where you do it). However, the likelihood is that having the agreement in place will help cooler heads prevail and if not, it will provide a path out (maybe a bumpy one, but a path nevertheless).
Whether you have an agreement in place in advance or not, breaking up is always hard, but it can’t be worth it to stay in a partnership that makes you unhappy.
