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

Why does a “good” partnership or company split up? (Part 2)

[Continuation of last week’s blog, “Why does a  ‘good’ partnership or company  split up?]

The principal reason that many a partnership or similar company endures a turbulent “business divorce” is because they didn’t take the time to communicate, evaluate, negotiate, and clearly reduce to writing what each member expected of the other at the threshold.

At the inception of a partnership, very few founders give serious thought to how the business will be managed.  Little or no time is set aside to work out the nuts and bolts of the day-to-day operations of the new business.  This is particularly the case with issues like acquiring equipment, cash reserves,  partners taking “expense reimbursements” for their personal needs, or what I call the Biggie:  Discussing how much time each partner will commit to actually working  at the business. The Biggie becomes critical when some partners are “investor” or “equity” partners, while others are contributing a skill, sometimes known as “sweat equity.”

For example: Have the founders settled how decisions are to be made if only one of the shareholders/members works at the business, while the other wants to continue working at his or her full-time job, watching to see if the business succeeds? Often , such a discussion is put off, or never even addressed.

When the business founders sidestep discussing the difficult issues and roles, assignment of responsibilities, cash flow and financing needs, even a minor bump in the road will reveal deep-seated, unspoken concerns partners have with one another.  These tend to get glossed over when times are good and profits roll in. But sustained company losses can expose these festering resentments. Shareholder, partner, or member dispute cases wind up in court when one or more of the partners decide to surreptitiously begin doing business on their own, separate and apart from the company. Often, their motivation is rooted in frustration, unresolved arguments, or a fundamentally  different view of how the business should be managed.

 

www.planobusinesslawyers.com

Richard Armstrong, Principal

Richard Armstrong, Principal

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