Even small, simple operations have plenty of moving parts. Use these ten key points to keep your company running smoothly, protect your assets, and avoid litigation. The Must-Have.  Don’t go into business with others unless you have an Owners’ Agreement.  You can’t see the future, and you can’t be certain that you and your business partners (or their spouses or heirs) will always agree on everything.  Why So Formal?  Company formalities are important to limiting your personal liability for the company’s obligations.  Have separate company bank accounts, separate company financial records, separate company e-mail addresses, and whatever else needed to clearly separate the company’s life from your personal life.  If you don’t respect this separation, the courts might not either. This Time, It’s Personal.  Lenders and financing companies almost always require the owners of a closely held business to sign personal guarantees.  This means they can sue the company, the owners, or both.  Do what you can to limit personal guarantees.  If you leave the company, understand what happens to your personal guarantees (and try to terminate them). Get Secure.  Unless you get paid in full at the time goods or services are delivered, get security for future payments.  Security might take the form of an escrow deposit, a personal guarantee, a bank letter of credit, or a pledge of the purchased goods or some other collateral.  Whatever the security, have a written agreement that clearly states your rights in case of nonpayment. Business Straight-Jackets.  In many cases, restrictive agreements are enforceable (provided they are reasonable in duration and geography).  Know what restrictive agreements apply to you and the people you hire.  Use restrictive agreements yourself to ensure that the person you hire today isn’t competing against you tomorrow. Protect the Good Stuff.  You don’t have to be the latest dot-something tech company to have valuable intellectual property.  IP may include your name, slogans, website, plans, and just about anything else you (or someone else) has thought of.  If someone else develops your IP (that web designer, for instance), make sure the creator assigns all the rights to you. What’s in a Name?  Not much, when it comes to “independent contractors” or “employees.”  Whether a person is an employee (which requires tax withholding and other administrative burdens) or an independent contractor (which doesn’t) depends on what he does and how he does it.  If you can tell a person how, when, and where to do her job, she’s probably an employee. The Tax Man Cometh.  Collecting taxes and delivering them to the taxing authority is a big deal.  Employment taxes you withheld and sales taxes you collected are not yours, they belong to the government.  The government will get them, with penalties and interest (or worse!) if they’re late. Fresh Stock for Sale!  Selling equity (stock, units) in your company may seem like a great way to raise capital.  It’s also a great way to have financial investors and security regulators looking over your shoulder.  Don’t sell equity if there’s a better way, and there’s probably a better way. Here’s the Catch.  Even if you have the right written agreements, it costs money to enforce them.  Your agreements might provide that legal fees and costs go to the prevailing party (most of them should), but you won’t get that until the end (and only if you go to court).  Litigation is always an expensive last resort.

An Owners Agreement is a document between the owners of a company about how to manage the business. Sometimes these documents are called Buy-Sell Agreements or Shareholders Agreements (depending on the structure of the business). No matter the name, the goal is the same: to keep all the owners on the same page about running the company, including deciding what happens when one leaves. It is critical to have a well-drafted Owners Agreement to guide your company. You must make sure any ownership transitions are smooth and handled efficiently. Here are eight of the most important reasons you should have an Owners Agreement: 1. Bylaws and Operating Agreements won’t cover you. Bylaws are a necessity for corporations, just like Operating Agreements are for LLCs and partnerships. But, they’re not Owners Agreements. Bylaws and Operating Agreements deal with the internal management of the business, like rules and regulations for how it operates. Bylaws also govern the relationship between shareholders, directors, and officers. Although LLC Operating Agreements can touch on some of the same issues as an Owners Agreement, they aren’t as detailed. Owners Agreements have one specific focus: the relationship among the owners, and especially transitions in ownership. The owners could be the members and managers of an LLC, the partners in a partnership, or the shareholders. The relationship between the owners is by far the most important, which is why Owners Agreements are a necessity. 2. You need a plan for unexpected events in any of the owners’ lives. What happens to the business when an unexpected event strikes one of its owners? Life often changes in an instant. Events like bankruptcy, divorce, disability, or death could fall upon any of the owners at any time. If there is no plan in place for such an event, the business could crumble. A well-drafted Owners Agreement can help guard against any unexpected event by making sure all relevant parties know in advance how to handle it. 3. You need to protect the business. In an ideal world, all business partners would be completely trustworthy. In the real world, that’s not always the case. Your business partners may have debts you didn’t know about. They may also have ex-spouses who try to go after the business in the divorce. With an Owners Agreement, you can plan for these issues and ensure that the ownership interest does not wind up in the wrong hands. 4. You’ll avoid deadlock. You and your business partners may be reasonable people, but sooner or later, even reasonable people can disagree. In a small business, like a partnership or LLC (sometimes, even in small corporations), decision deadlock can cripple the business. Have an Owners Agreement drafted well in advance to set up creative solutions for future deadlocks. 5. You can spell out what the owners are (and aren’t) allowed to do. Having put time and resources into building the business, the last thing you want is for your business partner to turnaround and compete with it. On the other hand, you might not care if your business partner has a side business (in case you want one too, for example). An Owners Agreement can help the owners agree on what should and shouldn’t be allowed, in terms of competing with the business you’ve built together. 6. You can remove former employee-owners. If an employee-owner quits or is fired, you may not want to allow that person to maintain their ownership interest. Without an Owners Agreement, however, you might be facing this awkward situation. Your Owners Agreement can have a clause that requires a buyout for any employee-owners who leave the company. In this way, you’ll always have owners around who remain invested in the company. 7. You’ll set the details around the buyout. The Owners Agreement can and should address the purchase price and payment terms for the buyout of an owner’s interest. You or your business might suffer from an unexpected obligation (or opportunity) to cash out an owner. You’ll want to make sure the Owners Agreement has set a method for valuing the ownership interest and funding the buyout. 8. You won’t fall into your state’s default rules. Sometimes, a state’s business default rules are just fine, but more often, you and your business partners will want things your way. In an Owners Agreement, you can fully customize your business. If anything ever goes wrong, you can also ensure that you don’t fall into non-favorable state default rules. Having a well-drafted Owners Agreement at the beginning of your business’ life is just the first step.  As your company grows, your Owners Agreement may not fit so well. That’s why it’s essential to review and update the Owners Agreement every few years to make sure that it continues to make sense for your business. Whether a business grows and thrives depends on the relationship among the business’s owners as much as any other factor. Having an Owners Agreement especially prepared for the owners is key to their relationship. Business Attorney Trevor Brewer GET HELP WITH YOUR OWNERS AGREEMENT Owners Agreements are complex documents. An experienced attorney can help you and your partners navigate the waters of starting your business together. For help with your Owners Agreement, call our office at 407-660-2964, contact us online, or email us at contact@brewerlong.com.