In the wake of BREXIT, the EU and the UK are struggling to “consciously uncouple” (the term made famous by Chris Martin and Gwyneth Paltrow). One of the biggest impediments is a sparsely drafted exit clause (Article 50) in the Lisbon Treaty which makes the process unpredictable. I can’t help but draw parallels to my own conference room this month where I find myself dealing with a number of “not so conscious” uncouplings among business partners.
It is just so frustrating. Why? Because it is largely avoidable. Look, no one likes to think about the end of a relationship at the beginning but that is a mistake. If you communicate clearly and have a good agreement at the start you will avoid a BREXIT style “what happens now” on the back end when no one is in a mood to start negotiating rationally.
Let me be as blunt as I can. If you are in business with another person, YOU MUST HAVE AN AGREEMENT THAT LETS YOU UNHOOK WITH DIGNITY AND DEAL WITH THE ASSETS OF THE BUSINESS. Yes, I’m shouting because that is how strongly I feel about this. And, yes the same rule applies even if your business partner is family or a lifelong BFF. Frankly, it's even more important in those cases.
Now for those of you who are saying: “Come on Juliet, you used to be a litigator. You know a written agreement won’t stop business partners from arguing over what a specific ‘is’ really means!!” That is certainly true but when things break down completely, and there is no written road map it is just so much worse. So. Much. Worse.
Honestly, the best time to talk calmly about the “what ifs” are at the beginning of any relationship when the bloom is still on the rose so to speak. It doesn’t need to be overly complicated but depending on your corporate structure your documents need to address the following issues:
- Who makes the day-to-day decisions in the business? Who has financial control? What mechanisms exist for a partner, member or shareholder to access financial information?
- What happens in the event of a decision deadlock? Is there a trusted third party who can help referee?
- How is the money going to flow, when and to whom?
- Are there any situations in which partners, members or shareholders may be forced from the business for bad acts?
- What happens in the event of death, disability, divorce or some other catastrophic event?
- Should the company or individual partners, members or shareholders be able to have a right of first refusal to buy the interest of a departing interest holder?
- What formula will the company use to value the business or an individual interest?
- What happens to the company’s assets and intellectual property on dissolution?
- How will documents be amended if they need to be amended?
- In the event of a significant issue, how will disputes be resolved? Mediation? Arbitration? Judicial Dissolution?
Even with a good legal roadmap, professional partnerships take constant work. Regular communication within the company and to advisors is critical. It is so much harder to help when someone shows up in my office five or 10 years into a business having never seen financials or suspects assets have been diverted and they said nothing… for years. Festering isn’t good.
From where I sit, the biggest single predictor of whether a break up will be manageable or a giant, expensive (in dollars and stress) mess is…. reasonableness. And that, my friends, is why an agreement can be so dang important. It injects a dose of sanity into a highly emotional process. It’s even better if the agreement forces the parties to find a neutral advisor or mediator to help guide the whole thing.
So please, before you commit one dollar of your hard earned money to a new venture, discuss the hard stuff first then pick up the phone and call your business lawyer. It will save you lots of aggravation in the long run.
