Why should my company have an operating agreement or a partnership agreement?
- posted: Sep. 27, 2021
“I trusted them.” Those words are usually what we hear when somebody asks us to represent them in an internal business dispute where there is no written agreement defining the relationship, responsibilities, and power among multiple owners of the same business. We have seen business relationships crumble and friendships disintegrate. Unless somebody has committed actual fraud, an Operating Agreement or Partnership Agreement can usually prevent (or at least substantially mitigate) a worst-case scenario – and when it comes to relationship-defining contracts, we always suggest putting them in writing.
Think about it in the context of a marriage:
In many marriages, there become household responsibilities for which only one spouse is accountable (i.e., budgeting, laundry, or mowing the lawn), while the other spouse is simply aware that these things are being done, but isn’t expected to contribute. There are also responsibilities which are shared by both spouses (i.e., childrearing, cleaning, or cooking). Sometimes, one spouse gets sick or injured and the other has to cover those tasks. Other times, a married couple might hire third-parties to take charge of various household responsibilities.
Now remove eternal love from the relationship, and replace it with money. Now we’ve just got two roommates trying to make a buck.
As a business grows, develops, and finds its identity, owners may have differing views on future growth and development. A 50% owner may take recent success as a sign that they can work less and spend more time with their family, while the other may want to work twice as hard to double down on that success. A 50% businessowner will typically not want to give up any ownership or decision-making power, so what can they do? Without a written agreement between them, this is a situation that can turn ugly, and fast. This becomes even more complex with 3 or more equal owners, and can often turn into a ‘too many cooks in the kitchen’ scenario without properly defined voting powers, ownership, responsibilities, and actions requiring unanimous consent. (It should be noted that a business owned by 3 or more people is significantly less taboo than a marriage with 3 or more people and the marriage analogy should be taken with relativity.)
An Operating Agreement or Partnership Agreement may need to be very specific or relatively broad, dependent upon on the nature of the business, number of employees, and number of owners/partners. For example, in any jointly-owned company, each owner is going to have their own personal interests, such as their family. So what happens when an owner dies? Does that owner’s spouse or child take that control? Should the company be required to buy out the deceased owner’s share? If there are more than 2 owners, how should the deceased owner’s share divided?
If you are a partner or part-owner of a Florida business, you should contact a Florida business attorney to discuss the importance of developing an Operating Agreement or a Partnership Agreement. When businesses plan for the worst-case scenario, the worst-case scenarios are usually avoided.
The safest way to determine your business’s needs is by contacting a Florida business attorney. Romaguera Law Group offers 100% FREE consultations and evaluations.
Romaguera Law Group represents many small- to medium-sized businesses in the State of Florida, and we follow the same general goals with each contract:
(1)Contract protects the client to the fullest extent plausible;
(2)Contract discourages the other party from suing the client;
(3)If the client has to file a lawsuit, the Contract language should make that lawsuit simple, quick, and efficient; and
(4)When the client wins the lawsuit, the other party must reimburse the client for its attorneys’ fees and court costs.