Starting a new business venture can be an exhilarating experience. Confidence and optimism abound at the start, and many teams of founders feel like the sky is the limit. In fact, such relentless optimism has been repeatedly documented as one of the most important keys to founding a successful business. However, that optimism can cause problems if it starts to interfere with contingency planning. One major way that can happen is if the company’s new founders fail to write out clear documents that set out everyone’s business relationships. Often, people are reluctant to do so, thinking that everyone gets along so well and that no one needs to put anything on paper. Yet, business relationships, even longstanding ones, can fracture, and it can be much easier to solve or prevent problems if people took the time to document relationships and expectations at the start.
Things to Write Down
There are a handful of different things that it can make sense for founders to memorialize. One of the most important things to write out are the duties of all the people involved in the business. These sorts of lists can help clarify what anyone should be working on at any given time, and they can prevent confusion over what people expect from each other. Even just negotiating these lists of duties can help cement relationships and provide more direction for a business. These duties can also play a role when the founders choose to write down their relative ownership stakes in the company or the other agreed-upon compensation.
Another important thing to write down when memorializing relationships is a list of dispute resolution procedures, especially for businesses being founded by two equal partners. While founders may start out with the same vision for their businesses, these visions can diverge. Even when founders stay on the same page, smaller disputes are inevitable. Exactly what dispute resolution procedures are available is quite flexible. They can be anything from mediation, giving a third party a tie-breaker vote, or even random chance like coin flips or rock paper scissors.
The Purpose of Memorializing Relationships
Many founders are reluctant to write their relationships down because they do not think they would ever sue their co-founders. Whether that belief is true or not, it leaves out the more important reason for writing out relationships and rules: communication. Having a written set of expectations lets all the founders be clear about their responsibilities and the processes for enforcing them. These expectations are usually written down on some sort of legal document, but really they are more about having something concrete that the founders can go back to if there is a dispute or if someone is not living up to their promises. These sorts of informal interventions can often solve problems quickly and keep relationships intact, rather than having to resort to more formal dispute resolution procedures like litigation.
Founding a new company is an exciting opportunity, and there are certain legal steps you can take to give your business a better chance at success. If you have questions about these steps, contact a Youngstown business attorney at the Law Office of John C. Grundy.