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6 March 2014
Category:
Business Law
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An often overlooked priority when launching a new business, particularly when there are partners involved, should be to create an operating agreement. An operating agreement protects the business in the long-run by defining each partner’s responsibilities, how the business will be managed, and also addresses how a conflict of opinion will be resolved.

When friends or family start a business together, it is not uncommon to do so without the proper documents in place from the beginning. Frankly, conversations about how to handle problems down the road seem almost intangible and are about as popular as a prenuptial agreement when heading into a marriage. The conversations seem awkward, as if the relationship is launching with a lack of trust. That said, this is the most crucial time period to create an operating agreement. Determining an objective terrain for navigating the growing business happens far more objectively when handled up front, and when partners do still trust one-another. Often verbal agreements are made but nothing is put into a hard copy and agreed upon by all parties. This can cause many issues down the road as circumstances can, and do, change for everyone involved.

The most common changes include differing opinions on how to manage the company’s growth, personal life changes that affect work styles, or even personal jealousies for professional development or accolades can disrupt the relationship between business partners. In the beginning the parties tend to be agreeable and have the same vision, but as the business evolves, these changes can cause what often prove to be irreconcilable differences between the parties, resulting in a stalemate. This can be detrimental to the business, hence the reason a business should afford the creation of these documents. Furthermore, the timing of implementing an operating agreement is key.  Once the turmoil has begun the chances of the partners agreeing on all points decrease exponentially.

Whether in the creation stages or in the dissolutions stages, all parties should have their own attorneys. This includes the business itself, where the attorney would be looking out for the best interests of the corporate entity, and any partners, each of whom should have their own legal representation. Your corporate attorney should not be your personal attorney as that represents a conflict of interest. It is highly unlikely that your personal interests are in all cases perfectly aligned with the ideal interests of the company. The trick is to make informed decisions about any points of negotiation, providing you, your partners, and the company as a whole with the most agreeable, best case scenario.

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