One of the most challenging parts of the practice of law is helping people deal with issues that are not technically legal issues. In my practice, those non-legal issues often deal with the relationships between business co-owners or “partners,” as they are commonly described.
Sometimes, entrepreneurs and small business owners want to bring on key employees or colleagues as partners. I can and do prepare the legal documents to effectuate that objective, but there is a myriad of other considerations that the new partners also need to address independent from legal documents.
Determining those considerations does not necessarily require involvement of an attorney. Fortunately, though, my background in FFA and my non-legal business experience usually positions me to help clients analyze non-legal issues between prospective and current business partners. However, many of my attorney colleagues have neither the time nor skill to help analyze those non-legal considerations.
Those “non-legal” considerations include asking how much work each partner will contribute to the venture. If one partner will be undertaking less skilled work than the other partner, will each partner’s time be valued differently? Which partners can decide what, and what decisions must include every partner?
For instance, two of my cousins and my brother jointly own a small excavation and trucking LLC. One cousin works for the LLC full-time. The other two co-owners only work for the LLC part-time. One of them has more free time to devote to the LLC than the other, but the other has a commercial driver’s license. The understanding among those three co-owners as to workload and allocation of profits is as important as any legal documents concerning their LLC or liability protection.
The non-legal considerations take on added importance when the prospective or actual partners are related to each other, as is the case with my brother’s and cousins’ business. In those situations, a clear understanding and explanation of non-legal relationships and expectations is often a make-or-break component to everyone’s success.
Notably, almost all the non-legal considerations should be integrated into the legal documents. Therefore, if an attorney is not involved in the non-legal considerations, the attorney must nonetheless be familiar with the expected or actual working relationships between the co-owners.
The legal documents will encompass various points that are either legally required or advisable. If there is an entity involved, the entity’s operational requirements should almost always be updated to accommodate a new owner. The entity itself should adopt a resolution (the way an entity “speaks”) agreeing to or ratifying the inclusion of any new co-owner.
An overview of the process of integration of a new co-owner should be set forth in a detailed sale/purchase agreement. Other documents that are a part of a partnership/co-ownership arrangement usually include bills of sale, promissory notes, deeds, and leases.
Generally, but not always, the process of converting a business venture from having one owner to having multiple owners requires more documentation than adding an additional co-owner to a business that already has multiple owners.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.