Recently, a friend approached me with a complaint. He hated 50/50 partnerships. The reason behind it was he had a client who wanted to be bought out of the partnership but the other one had no interest in doing so. Fortunately, the partnership had a partnership agreement; unfortunately, the agreement was not realistically drafted. According to my friend, the partnership agreement called for any dispute regarding the partnership, which included the current situation to be sent to arbitration.
As discussed in previous blogs, private arbitration is very costly for all parties involved. In this situation, two individuals would be paying the price of arbitration, with the only loser being the business. The question then becomes, how realistic was this partnership agreement?
One important aspect to keep in mind is that any document which will govern your company should be specifically drafted for your company. While you can find stock agreements that may look appropriate, if they are not tailored to your specific situation, they could cause more problems than good.
Another important thing to consider is how realistic your agreements are. This means you should not only create documents that are realistic at the time you create them but also have them periodically reviewed to ensure that they still fit your business.
Relating these suggestions to the example above, had the business partners created a realistic partnership agreement at the beginning of their partnership as well as engaged in a periodic review of the documents with a legal advisor, they would not have come across the situation in which they are currently involved.
During a review of the documents, a legal advisor who focuses his/her practice on business law could have explained to the partners about the high cost of arbitration and that any reconcilable dispute would have to follow that route. The advisor would also explain that while any business breakup is difficult, the loss of the company would most likely occur, especially because of the burden placed on the two person business by the current agreement.
Hopefully, the partners would heed the advice of the advisor, allowing for a revised partnership agreement, one which would remove the arbitration agreement, or at least limit it to the most extreme situations. Doing so would allow for the continuation of the business, even after the divorce.
By having an outside eye review your company’s agreements, you will be able to ensure that your documents remain up-to-date and realistic so that your company can continue to run smoothly.
If you are located in Montgomery, Delaware or Philadelphia County and would like your business documents reviewed, please contact Sallen Law, LLC.