I recently had the opportunity to discuss the prospect of forming a new business for one of my clients. This client had several questions when it comes to forming a new business. This client had questions regarding all the contracts that he needed, agreements that he needed between himself and his business partners, and any other possible pitfalls that could come up now and in the future in regards to his business. This provided me with a great opportunity to write this article on the best practices when it comes to forming and ending a business relationship.
As I tell every client that comes into my office to discuss forming or ending a business, the devil is in the details. It is never what you don't know that hurts you, it's what you know for certain that turns out to be incorrect that can harm you irreparably. For this reason, whether it is forming or ending a business relationship, it is important to obtain qualified and experienced legal counsel before committing any action.
First, when you form a business, especially when you have other business partners involved, the following is a non-exclusive list of legal matters that you will need to address:
- Proper Incorporation Documents filed with the Tennessee Secretary of State (LLC, Corporation, Partnership, Etc.)
- Operating Agreement that Controls the Operation of the Business Among All of Your Business Partners
- Indemnification Agreement Between Yourself and Your Business Partners
- Contracts for Vendors
- Contracts for New and Existing Clients and Customers
- Appropriate Federal and State Regulatory Filings
- Tax Planning Strategy to Minimize Taxes for the Company
- Employment Contracts and Agreements
- Non-Disclosure Agreements
- Employee Handbook for New and Existing Employees
Failing to start out on the right foot, can lead to problems, unnecessary costs, and unnecessary legal expeneses that could have been avoided.
However, what about ending a business relationship? What should you do and what should you not do?
First of all, ending a business relationship may not always be a disagreement. Sometimes, business partners decide that it's time for them to exit the business on their own, sometimes they decide they want to retire and leave the business, or sometimes, unfortunately, a business partner may pass away unexpectedly and you will need to transition the business to the remaining business partners or the next generation. In these cases, hopefully you have a valid and enforceable Buy-Sell Agreement that outlines the terms and condition on what occurs when a business partner leaves. In addition, hopefully you have a valid and enforceable Operating Agreement that states specifically how and when a business partner may leave the business.
However, sometimes, a business partner may need to be forced out, bought out, or the terms on which the business partner leaves is adversarial. In these situations, it is important to immediately retain legal counsel to guide the business through the process. Unfortunately, sometimes litigation is unavoidable in these scenarios. However, hopefully, with the right law firm in your corner, the litigation costs may be minimal.
If you have questions about starting, forming, or even ending a business partnership, contact us for additional information or an in office consultation. As always, we are here to help.
Daniel A. Perry
Fidelis Law, PLLC