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Why It’s Important To Put Agreements With Your Co-Owner In Writing

All too often, the business owners we help have made the mistake of getting deeply involved in a business with one or more other owners without taking adequate time up front to communicate with the other owner(s) and to put in place important agreements for the business. While many of those are legal agreements like Operating Agreements, Shareholders’ Agreements, Loan Agreements, and the like, other things business owners should discuss, and which they can put in place with minimal legal help or without legal help, include agreements regarding:

  • Goals
  • Business roles and responsibilities
  • Time commitments (stated another way, work/life matters)
  • Technology matters
  • Physical space for the business (including whether, in certain instances, no such space is necessary)
  • Required communication and/or meetings
  • Triggers for events such as hiring employees
  • Any other of the wide variety of topics to be addressed in organizing and operating a business

The time, effort, and energy it takes to get written agreements on such items in place can be significant, but the effort generally is well worth it for multiple reasons, including: it helps business owners get aligned; it fosters an environment of communication in the business that is good for the business as a whole; and, it avoids disputes and provides a background for efficient resolution of disputes when they arise.

Beyond these agreements, which are commonly recommended, business owners also are wise to go further and to communicate extensively regarding topics that often are like those people considering marriage discuss beforehand. Things like:

  • Financial attitudes and how to handle money
  • Core values and beliefs that could impact the business
  • Individual qualities that are likely to be a boon for the business, as well as those that present risk
  • How to handle and address stressful events
  • Appetite for risk
  • Level of financial security each owner has
  • Level of financial commitment each owner is willing to make
  • Communication settings and times that work and those that don’t
  • How long each owner envisions being part of the business
  • Past business and relationship successes and struggles

While some of these topics may strike some as beyond the scope of business or otherwise taboo, my experience is that not having conversations about these types of topics is what all to often contributes to business owners having disputes that lead to business break-ups, and, in some instances, the “business divorce lawsuits” through which some business owners are forced to separate from their co-owners. (As I and many others use the term, “business divorce lawsuits” are those lawsuits where business owners separate their business interests in an adversarial, litigated context. Business divorce lawsuits usually do not arise until after negotiations regarding separating ownership interests have failed.) Not only can having deep conversations with a prospective business co-owner help avoid future problems, it also can foster deep connections that make businesses more successful.

If you need advice or assistance with co-owner conversations or agreements, or with disputes with a co-owner, let us know – we’re here to help. Click here if you’d like to request a consultation.