Having a business partner when starting your business has a lot of benefits, such as sharing skills, resources and ideas. But sometimes it can result in disputes, especially when the partners cannot come to an agreement on the ownership, management or future of the company.
A clearly defined contract, such as a shareholder or operating agreement set up at the very start can help avoid these problems before they arise.
Important things to keep in mind when creating an agreement
A company’s needs change over time — founders may take on new roles, bring in additional owners or restructure the business as it grows. Thus, a founder’s agreement should not be treated as a one-time document. Founders should review the agreement periodically and address the following key points when drafting it:
- Ownership interests: Specify each founders’ initial ownership stake, along with how that ownership may change if you issue new shares or add new owners to the company.
- Roles and responsibilities: Outline each founder’s areas of authority so that there’s no confusion over who handles day-to-day operations versus major business decisions.
- Voting and decision-making rules: Clarify which decisions require approval from all founders and which ones an individual founder can make independently.
- Founder’s departure: Think through what will happen if one of the founders wants to leave the company, becomes unable to work or wants to sell an ownership interest. A buy-sell agreement can establish procedures for transferring ownership and determining its value.
Beyond these core terms, it’s worth understanding how New York law shapes the type of agreement your business needs. For example, an LLC operating agreement can specify how your company will be managed and set out the rights and duties of its members. In contrast, a shareholder agreement is often used to describe how a corporation’s shareholders will make decisions and exercise their rights.
How an agreement can protect your business
Ultimately, a well-drafted agreement gives founders a shared roadmap for ownership, responsibilities and decision-making, reducing the chances that disagreements turn into costly disputes down the road. If you are starting or running a business in Buffalo, a business law attorney can help you choose the right agreement and address key terms.
