Starting A New Business: What Documents Do You Need?
Documents for a New Business
Entrepreneurs are often caught up in the excitement of starting a business and don’t want to get distracted or bogged down by working on the recommended paperwork for their new business. Entrepreneurs are often anxious to get to the fun and MONEY MAKING part of a new business and they think they will take the time to work out the details later. Friendships and collaborations are part of what make new businesses successful and sometimes it feels like taking the time to work out the details and plan for the future feels like planning for divorce at the marriage altar. Likewise, some entrepreneurs think that their business needs to be a certain size or making a certain amount of money before it makes sense for them to consider succession planning. However, if the appropriate paperwork is not taken care of before a new business gets off the ground, the business could fail without even having a chance to succeed.
New Business: Partnership Agreements/ LLC Operating Agreements
First, entrepreneurs need to consider a partnership agreement or a limited liability company operating agreement that will lay out the obligations of each of the partners in the business, what decisions require input from more than one of the partners and how the partners will be paid or compensated for their efforts on behalf of the business. While these can sometimes be difficult conversations to have, any discomfort the parties might feel negotiating the agreement could pale in comparison with ending up in a courtroom battle.
The need for the appropriate agreements does not stop at agreements between the owners. Many companies have intellectual property, such as a trade name, trademark or patent. A contract outlining that the company will own all of that property can save problems in the future if one of the partners leaves. In some cases, it may also be appropriate to require everyone affiliated with the company to execute non-compete and/or confidentiality agreements in order to reduce the likelihood that the company’s IP is compromised or that one of the partners simply leaves the business and creates their own competing enterprise.
Likewise, just as individuals might need to consider a prenuptial agreement and need estate plans to plan for the “what ifs” in life, business partners are also encouraged to execute an agreement regarding the rights and responsibilities of each party and a plan to cover any of the 4 D – Death, Departure, Divorce, Disability. The hope is that the legal remedies outlined in the agreements will never be needed, but without them, nothing less than the future success of the business could be at stake.
If you are considering starting a new business or have a business that hasn’t taken the time to draft partnership agreements, operating agreements or a business succession plan or you need some help making sure your IP is protected, contact our office. We can help you make sure that you have the necessary agreements in place to make sure that you have solidified your business relationships in writing. The future success of your business may depend on it.