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Going into Business with Partners? Don’t Leave the Relationship to Chance

Lucere Legal helps set up business partnerships

The only thing that compares to the American entrepreneurial spirit is our litigious tendencies. The two often go hand in hand, as business relationships involve one of the more contentious points in life. An otherwise minor friction can erupt in flames with the right kindling–money!

If you work alongside a partner to make your entrepreneurial dreams a reality, it is important that you set certain safeguards in place. Disagreements will arise–nothing can stop that–but a founder’s agreement is essential to both mitigating the friction that can arise and making sure it doesn’t result in your fledgling business burning to the ground.

Any properly-structured founder’s agreement will follow the following guidelines:

Assign roles and responsibilities.  You and your co-founders likely have different areas of expertise. The businessperson; the marketing expert; the computer geek–whatever your role, you each bring to your business a unique perspective that can empower your business to reach higher.

Take care, however, not to be stepping on each other’s feet. By defining specific roles and responsibilities for each individual and sticking to them, you can avoid much of this risk. Not every minor decision need be submitted to a group vote, particularly if the specifics are so technical as to leave your colleagues incapable of informed input. Knowing your specific areas of responsibility will ease the growing pains experienced by every new business while establishing a dynamic system that will help your business survive the years–even decades–ahead.

Allocate ownership.  Money isn’t the root of all evil, but it sure does open the door for all kinds of disagreement. Though your entrepreneurial aspirations may be driven more by passion for the work than the money it brings in, everyone still wants to feel that they receive what they deserve.

How equity will be split among the founders must be decided and put in stone at an early stage–definitely before the profits start to roll in. Particularly if the roles/contributions of the founders are unequal, negotiations over each partner’s share can be delicate. Still, just imagine the far less sanguine discussions that will take place when your partners discover their income is not as they had expected! Don’t forget to determine market vesting terms in the event that one founder leaves or there is a split.

Assignment of intellectual property.  Dealing with intellectual property is a must for every business, yours included. Whether a product, trademark, or some proprietary technology, it is vital that the right to that property be assigned, or at least licensed, to the business for it to thrive after the departure of a founder–if your business partner walks away from the lemonade stand with the pitcher, all you are left with is dozens of empty cups. Don’t let the principal component of your business be pulled out from under you.

Whether you’re starting or already running a business, the best time to hire a lawyer is before you need one.  Having a business attorney that understands the individual needs and unique circumstances of your company is key to helping your business thrive and prosper.  If you are interested in learning more about legal protection strategies for your business and how we work with you as a partner in protecting your company, call us today at (612) 206-3701 or fill out our contact form to schedule a small business consultation session.

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