Great ideas often turn into a success when friends, college buddies or family members become business partners. Those relationships tend to be innovative and creative, but quickly become problematic when formalities are left on the side. Mark Zuckerberg, the founder of Facebook, was accused of stealing the idea from a group of students at Harvard. The allegations didn’t stop here. The students founded a competing company and sued Zuckerberg and Facebook for theft and fraud.
Having an Operating Agreement can save business partners from legal trouble
Friends and family members who are in business together often disregard the need for formalities. Having an Operating Agreement in place from the beginning can prevent conflicts in the future. Here are a four things you should discuss when starting a business partnership:
- How much does each partner invest: It’s important to clarify how much each partner will contribute to the business. Contributions include labor, time, cash, property and customers.
- How will profits be distributed: An Operating Agreement outlines how much each business partner is getting paid and how extra profits will be distributed.
- How are decisions being made: Business partners should determine who can make decisions on what and which decisions require unanimous votes. A solid decision-making structure allows you to run your business smoothly.
- What’s your exit strategy: Discuss what happens if one partner decides to leave the company or common goals change. It might be uncomfortable to talk about negative scenarios in the beginning, but it will certainly save you from legal trouble as you build your business.
Wonder what it takes to create a comprehensive Operating Agreement? Learn more about our unique 4-step process.