Business Entity Agreements-Going in to Business Together!

So you'd rather not be out there by yourself? Sharing the glory can be the way to go, but too many people neglect to get a proper agreement to divvy up the cash (or, unfortunately, the losses too.) The old "handshake agreement" can turn ugly sometimes. It is best to have a proper agreement drawn up. Whether it is a partnership agreement, a shareholder agreement for a corporation, regulations for an LLC, the agreement can be critical for a business! The old saying, "Good fences make good neighbors" applies to going into business as well. When everyone agrees in writing ahead of time, there are many less misunderstandings down the road.

What to look for? Well, lots of things...after all, we are talking about everyone's financial future here! Most agreements run about 20-30 pages, and cover everything from distributions to dissolution (heaven forbid!) and lots of areas in between. The key is to make it fair based on what people have put in to the entity, whether it is cash, knowledge, property or just plain hard work. Did you think about how the voting would work? Can people use proxies? What happens if someone wants to sell out? Loans from partners? What if a general partner goes out of business?

An experienced attorney can make a big difference here, covering areas in the agreement that you might not have thought of otherwise. And the key is working with an attorney to let them get to know your business since this interaction is important to make sure everyone's interests are promoted and protected. While it is an added upfront cost, it will be well worth it down the road when opinions differ as to how things were going to be handled. And some businesses that are licensed by the state, such as bars, are getting requests before licensing that the business provide a copy of the agreement to the licensing agency prior to the issuance of the license. The agency wants to see how the money is being distributed.

So, an agreement is a wise investment!