As noted above, a large number of small business begin as sole proprietorships, partnerships or family business ventures. One thing many of these businesses have in common, then, is that they were founded on friendship and trust, rather than at "arms-length" with a stranger. Unfortunately, this means that the business often begin without any discussion of "what if" there is a falling out among the family members or friends who formed the business.
Fundamental Mistakes in Forming the Business
The failure of business owners to plan for "what if" often leads to disaster. Think of the business relationship as a marriage, and a business dispute (often leading to dissolution of the business) as a divorce. Business disputes can get just as ugly and unpleasant as any messy divorce. The fundamental difference, however, is that -- irrespective of what individuals may think of pre- or post-nuptial agreements -- business people should accept contracts as a matter of course.
Plan While the Relationship is Solid
The critical advice is to plan for "what if" while the relationship among those involved is solid. At that time, people are more likely to be fair, to be reasonable and to require of others what they are willing to accept for themselves. What are the rights of a surviving spouse? What if one of the owners wants to retire -- how is that interest valued and to whom is it sold? What if the partners can no longer agree on the proper course for the business? These and a hundred more questions can be thought of, discussed and provided for while the owners are friends. Delay in addressing these issues often means that the dispute arises before the answers have been agreed upon, leaving it to third parties -- lawyers, and judges and juries -- to decide what should be done. This means uncertainty, and it means expense. And it means further additional antagonism, asn litigation is not designed to "bring people together."
Hire an Attorney and Plan for the Future
The cost of hiring an attorney to draft an agreement that addresses the "what if" scenarios is one of the most sound investments a business can make. Do it now, before you and your family/friends have a falling out.