When Friends Become Business Partners

As a lawyer, I end up representing a lot of people who could have easily avoided the legal mess they are in. People get excited about working together with good friends and start the collaboration before finalizing the important terms (who will do what, how profits will be shared, how someone will be compensated, etc.).

When things go wrong, expectations and attitudes change. There are disputes over  the acceptability of terms and conditions informally agreed upon.

For example, I represent a real estate developer who entered into a deal with a friend who is a real estate broker. Part of the work was to be done by the developer and the rest was the broker’s responsibility.

However,  failure by the broker to do certain tasks in compliance with real estate laws led to delays  and affected the marketing and salability of the project.

Instead of being happy and rich friends, they are now fighting over accounting  issues.

Suggestions for a successful business partnership:

  • Have a detailed discussion on the roles and responsibilities of everyone involved. Assign roles and responsibilities based on the parties’ education, proven professional backgrounds, and the value they bring to the process.
  • Agree upfront on financial compensation. This is important to keep all parties  motivated.
  • Identify the legal vehicle to carry out the endeavor. In other words, decide whether you want to conduct your business as a partnership, corporation, or joint venture.
  • Identify appropriate professionals such as accountants, financial planners, insurance agents, and lawyers to help you with proper accounting, record keeping, and legal protection. Should there be a disagreement, properly maintained books will help alleviate doubts.
  • Have a legal contract documenting your understanding. For instance, if you are conducting business as a general partnership, have a detailed, fully-executed, general partnership agreement which is prepared with the help of an attorney. The attorney can help you plan for possible contingencies and  identify methods of resolving disputes by suggesting methods such as arbitration. In the absence of such methods being laid out ahead of time, confusion will prevail and will cost you more, should a dispute really arise.
  • You might try to save on the costs of incorporating your company by using the services of an online company. However, the personal touch and valuable feedback of an experienced attorney would help save you  grief later on.

Madan Ahluwalia has been helping homeowners with loan modifications and issues related to predatory lending and foreclosures. He can be reached at 650-331-1968 or visit www.takeourhelp.com

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