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The One Dire Mistake that Can Prove the Downfall of even the Best Entrepreneur

Lucere Legal helps entrepreneurs launch safely
Categories: Business Formation

Your new business needs to acquire two things: investment and talent. Many entrepreneurs will put their elevator speech to dozens of prospective individuals who might make up a critical part of the established company–a process that will often move like a whirlwind.

And, like a whirlwind, there’s a great deal of risk involved. It’s not uncommon for an entrepreneur to bring the topic of equity allocation into a discussion over a new venture. Though the talk with a potential candidate may seem to take place very informally–drinks at the bar, on the squash court, or through a phone call–the perception of both parties may differ wildly.

This poses no problem if that person is brought on board and proves themselves a valuable contributor. Others, however, might get on board only to leave within weeks, or not even join the company at all, yet endanger the future of your entire enterprise because of that ‘casual’ talk about equity.

In a world in which so much requires formal written agreements to be legally binding, it may come as a shock to you that courts have consistently found that such spoken promises do enter both parties into an agreement. That’s why it is vital that you pursue this kind of outreach with the utmost of caution. Particularly in advance of venture funding or a liquidity event, this kind of disagreement can overturn a company’s carefully-laid plans.

The best way to avoid this is to set in place the safeguards that will allow you to discuss equity without risking a conflict. First, your company must have been legally formed, with all equity and vesting terms already established. And then, equity should only be granted to those you choose, and the transaction should be memorialized in a written agreement.

We help business owners avoid costly legal disputes through proactive business planning, including crafting agreements and procedures to ensure you comply with state and federal law. To learn more about our personal approach to business planning, call us today at 612-206-3701 or via our online contact form to schedule a small business consultation session.

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The plain-English guide for Minnesota small business owners

When it comes to business, ignorance isn't bliss; ignorance is risk.

There's a handful of legal topics that business owners should be familiar with, at least on a rudimentary level, to reduce the risk of having something horrible come out of left field.

This book is a legal guide to help you put the most common business legal issues on your radar, with enough information for you to be on the alert for when you may need to get some professional advice.

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Do you have a cabin?

The first generation that buys a cabin enjoys it to the fullest and it’s a magical place where happy memories are made and families go for some much needed respite. Unfortunately, without thoughtful planning, the chances of the cabin staying a place of happiness and tranquility into successive generations is very, very slim.

If you haven’t done the planning in advance and made it legally binding, the family members (and their ex-spouses and new spouses) will have to work every detail out for themselves. If they can’t, what is likely to happen is a lawsuit called an action for partition that forces everyone to sell their interest. This lawsuit is expensive, and the costs of litigation will come out of the proceeds of the sale of the cabin, so to add insult to injury to those who wanted to keep the cabin but couldn’t afford to buy the others out, they are footing part of the legal bills in the lawsuit against them. Ouch!

It’s no wonder that family members stop speaking for years after the cabin conflict is “resolved.” You can’t make family relationships perfect, but you can take away much of the fuel for the family conflict fire. That’s what cabin planning does, and it has the nice side effect of giving you peace of mind now.

That’s why Kimberly wrote The Minnesota Cabin Planning Guide and Workbook, and you can get a free electronic copy of her book on our cabin planning website, or you can find it in many county libraries in Minnesota, or you can get it on amazon.com.

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