Barry and Tom are going to start a business together. They’re neighbors, the best of friends, they watch Monday Night Football together every week. They’re such good friends, that they decide to start their company on a handshake and because the business takes off right away, that’s all the agreement they ever have.
But what happens when Barry wants to sell the business and Tom doesn’t? What if Tom doesn’t want to have to be involved in the day-to-day running of the business?
Every business needs to have a partnership agreement in place to help plan for potential issues. These documents have different names depending on the entity you have – whether you’re a corporation with bylaws, an LLC with an Operating Agreement, or a Partnership with a Partnership Agreement. It is an agreement about who owns what, who has managerial powers, who makes the decisions, and what happens if one of the Owners dies or wants to retire.
Many of our clients come to the firm for other legal issues, and are surprised when we ask to see their Operating Agreement. Barry and Tom certainly were; they thought only big companies needed formal agreements. But after we explained why the document is so important, both were happy to get their arrangement’s “specifics” down on paper. Ask your college buddy who recently started a craft brewing company if he and his partners have an Operating Agreement in place. It is not just for Fortune 500 companies. Every business needs one.