1400 Gables Ct #103 Plano, TX 75075
5601 Bridge Street, #300, Ft. Worth, TX 76112

What they won’t tell you (but we will) when you start up a business.

I hope you don’t mind, but I am going to piece-meal this blog out. Why? Probably because as a small or start up business owner, you won’t have time to read very  much in one sitting. But the information I give you will be street-smart–often not the type of information you expect to hear from your lawyer.  It will sum up what I have found, time and again, they don’t teach you in business school.

Forget much of what they told you regarding a corporation or LLC protecting you from liability.

Why? Because, while a corporation or limited liability company offers certain protections, you are going to have to sign personal guarantees for things like office leases, equipment leases, or bank loans. When you are small, and particularly when you are starting out without significant assets or credit history, you must guarantee your contractual obligations. This makes you personally liable in the event of default, and makes the party contracting with you more comfortable, because you have some “skin in the game.”

Don’t get me wrong: I we seldom recommend to our clients doing business without an entity shield in front of them. But it is not the panacea that you can be led to believe, especially regarding contractual liability. It is possible to contract around nearly anything, and if you want to do business in the real world, you are going to have to sign guarantees. Don’t feel too badly about this. Folks that are much larger or more well established than you have to do the same thing. The only difference is that they are doing bigger deals than you are.

When you do sign a guarantee for an obligation or instrument, just make sure you could take the financial hit if all the wheels came off the transaction.

At some time or another, you will have a gut-splitting disagreement with a partner, equal shareholder, or co-principal.

This issue is not whether you will have one, but when. The push-pull, rough-and-tumble dynamics of the start up business world, compounded by the challenges of each of you balancing personal family needs with business demands, eventually takes its toll. No, I am not saying that you should hang it up, or even that you should necessarily walk away from your business when this happens. Precisely because the fact scenario in which this occurs cannot be reliably forecast, it is essential that you prepare for it in advance. This is done in a couple of ways.

First, develop a good line of communication on all company issues right away when you set up shop. Along with that, develop a conciliatory management style that lets you work on issues as a team. The manner in which you handle “the small stuff” in the early years will be a good predictor of how you handle the really large problems –the ones with lots of money in the balance–later on.

Second, pay attention to the old adage, “Good fences, good neighbors.” Spell out clearly your partnership or other business relationship up front. Anticipate all the possible scenarios, and work out a procedure for handling them, in advance. That way, you won’t be subjected to the temptation to make bad decisions under fire.

While there is no guarantee you won’t wind up in a partnership dispute at some time or other, by doing the above you can significantly reduce the chance of partnership dispute litigation occurring, or become lengthy and expensive if it does occur.

Richard Armstrong, Principal

Richard Armstrong, Principal


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Armstrong The Law Firm, P.C.
Plano Location
1400 Gables Ct #103
Plano, TX 75075

Fort Worth Location (By Appointment Only)
5601 Bridge Street, Ste. 300
Ft. Worth, Texas 76112

Phone: (972) 424-5297