Written Agreements Protect Business Partners And The Business
By Judith Bachman
If anything has shown us we count can on nothing, it’s the pandemic. It has revealed just how easily life can be upended and that the best laid plans – or even the best of intentions – may not matter when unforeseen circumstances come our way and human beings react.
COVID-19 has thrown death and dissolution our way. It has been an enforced “reset” of our goals, desires, capabilities, and how we plan the future.
The pandemic has put far greater emphasis on the need for businesses to have exit strategies – particularly when the business has more than one partner. For some, COVID has been a prompt to put a business to bed. For others it’s represented a period that calls for doubling down, fighting harder to reinvent or save what’s been built. What’s problematic is when two owners feel diametrically opposite about how to move forward.
Too often, underlying conflicts fester and hurt a business. And during a period like this one, working at cross purposes can seriously impact the long-term health of a business. What makes the most sense is to lay the groundwork to avoid conflict no matter what circumstances arise. Even for businesses that now find themselves at a crossroads, this is a good time to plan for conflict resolution.
The shield against conflict is a written agreement between business owners – be it corporate by-laws, an operating agreement, or a shareholders’ agreement. That document establishes the process for handling conflict with a pre-set solution for each eventuality.
The written agreement must cover two important parts: triggering events and resolutions for each conflict event. Triggering events could include an array of various events such as financial disagreements, conflict over major business decisions, or allegations of wrongdoing. The corresponding pre-agreed resolutions to those triggering events could range from mediation, termination of employment, a forced buy-out or even dissolution of the company.
The pre-agreed resolutions should be spelled out in as complete detail as possible. So, for instance, rather than saying that in event of conflict, the parties will go to mediation, the agreement should lay out who will do the mediation, when it will occur, and how it will be conducted.
To protect each party’s interest, it may be necessary for each business owner to have their own individual counsel and for the business to have an attorney, as well. And, depending on the circumstances, business owners may also need to consult a trust and estates attorney, to assure that the agreement aligns with each owners’ estate plans, and a family law attorney, to assure that marital issues are taken into account.
No matter what the written agreement among co-owners ultimately provides, though, the important thing is that everyone knows it is in place and knows the consequences for conflict.
In many instances, simply having that conflict management process in place is enough to avoid conflict in the first place.
Judith Bachman is the founder and principal of The Bachman Law Firm PLLC in New City. judith@thebachmanlawfirm.com 845-639-3210, thebachmanlawfirm.com