Get it in writing

understanding. Expressed in terms used in contract law, this is a meeting of the minds. Everyone understands the deal, knows their part in it and knows everyone else’s part. This doesn’t need to be a stressful or contentious process because the goal is to reach consensus.

In our example, the two future business partners need to discuss some standard items, such as roles within the company, how accounting will be handled and other issues. There are many other items that should be discussed, however. What happens if they can’t come to an agreement? Does one have enough voting power to make the decision unilaterally? What happens if someone wants to exit the business? What about the event of death or divorce? Can one owner sell their part of the business to anyone, or will there be some restrictions? If one person is going to do most of the work while the other puts up the money, what will be the metric to ensure the work is getting done fairly? How will business partners evaluate whether they are all pulling their weight and performing their duties? What happens if one person doesn’t do this?

These questions can be uncomfortable, and a frequent first reaction is to say, “That won’t happen,” or “We’ll work it out then.” In reality, nobody knows what their situation will be in the future. Relationships, financial situations and other life circumstances evolve over time.

Planning for these issues at the outset of a business relationship eliminates uncertainty down the road. If one of these events occurs, the written document will provide guidance on how to proceed. That doesn’t mean everyone is locked into what is written. Documents can be changed and new agreements can be reached, but everyone involved will have to agree to the change.

Addressing these issues in advance doesn’t always eliminate conflict. It is, however, far easier to know what to do when there is a written agreement instead of relying on different memories of expectations and discussions. Starting a business without a written agreement leaves room for misunderstandings if things go wrong. Former business partners often end up with bruised feelings and in costly disputes as they sort through old notes, emails, and memories to try to piece together the terms of their original deal. Those memories often differ, which drags out disputes even more.

It does take a bit of time and effort to go through all of these issues in advance. But there’s another old adage that also applies here: “An ounce of prevention is worth a pound of cure.” It is far easier and less expensive to anticipate issues and go into a new business venture with a written agreement understood by everyone than it is to deal with issues after problems arise. You’ll save time, energy and money if you pause at the beginning to plan for the future. D

John Gasele is an attorney at the Fryberger Law Firm, where he practices general business, trademark, copyright, utility, and internet/e-commerce law. You can reach John at 218-722-0861 or through www.fryberger.com.