We all know people who are either just starting a business venture or have been doing so with fellow investors or partners for some time. Unfortunately, many of these people we know have embarked on these business ventures without a plan. Because they did not have a plan to deal with contingencies, partners often reach an impasse on important decisions regarding how to go forward with a particular business opportunity, putting the business at a costly standstill. This is especially true with businesses formed by multiple investors or partners.
A specific example of the risk behind engaging in a joint venture without a written agreement arises when one partner or investor starts a business with the ambition for it to become his/her specific line of work; while the other investors, lacking the same level of participation and commitment, demand an equal share of the company's value or profits. Consequently, the more focused partner often ends up doing most of the work, yet the benefits are shared equally.
The solution is for prospective investors in a business to engage in a written agreement, e.g., partnership, member or shareholder agreements. This way, all members agree in advance on how decisions will be made, the level of commitment expected between members, compensation for that commitment, and even how disputes will be resolved. So, before you invest in a business, invest in a plan. This will maintain relationships with your fellow investors and ensure your business is in the best position to grow successfully and stand the test of time!
Kevin Gee is an experienced Michigan attorney ready to assist you with your business and estate planning needs.