“I have recently been working with a number of new business clients and their owners who are very good business people, have great businesses and business models. But, the old saying about “what you don’t know can’t hurt you”, well it just isn’t true in today’s business environment, I suspect it never was true. Especially when you are joining or considering joining forces with other business partners. Whether you know them well or not there are a few basic business documents that are a must-have before you jump into the proverbial “business bed” with your new partner/s.
Besides the basic operating agreement the following two legal documents are must haves before day one of when the partnership takes off:
1. A Buy-Sell agreement: consider the buy-sell agreement a prenuptial agreement of sorts, in the case the business partnership doesn’t work out for several very distinct reasons.
2. An Employment agreement amongst the new owners: It is used to plan out in detail how you and your new partners will be compensated with salary, bonus, fringes, perks, etc., and for how long thru the business.
It doesn’t necessarily require you to be an expert in employment law. It does require you to work with your business advisors to hammer-out these agreements well in advance of when they are needed. Friends, brother and sister, father and son, mother and daughter, new acquaintances, it doesn’t matter—all should have these two agreements in place.
An experienced CPA specializing in working with businesses and/or a seasoned business attorney are good resources to call on to help you with the process. It isn’t that expensive of a process either; and it sure beats the cost of when something bad happens and you don’t have the plans in place to handle them. If the documents have been drafted for you by your partners advisor’s, I strongly encourage you to have them independently reviewed by those who will be advocates and protectors of your interests—again your CPA/Advisor and/or your business attorney are your best bets to help protect your interests. By the way, the businesses I mentioned at the start—they either didn’t have these documents in place or relied on their partners to ‘take care of it’. In retrospect I guarantee you that these business owners wish they had known about the advise contained herein and had had a chance to follow it.”
Scott J. Malof is a CPA/PFS with SS&G Certified Public Accountants and Advisers in Cincinnati & Northern Kentucky. Scott specializes in assisting closely help businesses plan for their future successes. Scott can be reached at 513-587-3278 or