Good Fences Make Good Neighbors

Starting a business venture with a friend or group of friends has been a common practice for some time. Friends usually share common goals, values, and interests – so a business venture can often feel like a natural extension. Many successful companies in existence today were created by friends – Google, Twitter, Ebay, Ben and Jerry’s Ice Cream, Hewlett-Packard, and Microsoft, to name a few.

Unfortunately, conducting business with friends does not always have good results. Friends often rely on their history of friendship as the basis for any agreements between them. Basic business tenants go unspoken and unwritten – such as each friend’s responsibilities, salaries, procedures for disputes and winding up the business. Friends often delay or fail to confront problems and issues that arise, for fear of hurting the other friend. These unspoken problems cause resentment and conflict which can lead to the demise of the business.

Before starting a business with a friend or group of friends, make sure to do the following:

Have clear ideas regarding the responsibilities of each participant. How much time, money, or other assets is each person going to contribute? Who is ultimately responsible for each aspect of the business?

Agree on long term goals. How far do each of you want to take this enterprise? Are you doing this locally for some extra money or planning on hitting it big and going public?

Decide how decisions will be made and how disputes will be resolved. Who’s in charge? What happens when you can’t agree? If one partner wants out of the business and the other wants to continue, what procedures will you follow?

Invest in an adequate written agreement. Consult an attorney and spend the necessary time and money to create the correct organization for your business (for example corporation, partnership, LLC, etc.), as well as a solid written agreement. A good agreement is the foundation of your business. You should have provisions for capital contributions, debts and liabilities, dispute resolution, buy out provisions, winding up the business, and more.

Alexander Law Firm can help you navigate through business formation as well as through disputes that may arise. The best way to avoid a dispute is by utilizing proper planning and risk assessment. We have counseled many clients on these issues and we stand at the ready to help you. Contact us today!