This episode is about partnership agreements…and vendor agreements, loans agreements, employee agreements, etc. We make agreements constantly in our business, but most the time we forget to put something tangible in place so that both parties actually agree on the agreement.
If you want the list Ethan uses to have a successful agreement, here it is:
Checklist of Issues in drafting a contract between family members, a general partnership agreement, corporate bylaws, or an operating agreement for an LLC.
What state will the business be formed under?
What will be the formal name of the business?
Does the proposed name conflict with a name of another business or constitute a trademark infringement?
Where will the principle address of the business be?
What is the term of the business – how long will it last?
Do you have an exit strategy at this time? Do all the principals agree with this exit strategy?
What will be the “purpose” of the business? The reason the business is being brought into existence.
Will a fictitious name statement be necessary if the business has a marketing name?
Who will be the agent for service of process for legal matters?
What will be the initial capital contribution of the principals? Will the initial contributions be cash, check, assets, or time? If assets or time how will they be valued?
If the business needs additional capital, will the principals be obligated to contribute it? In what proportion? Subject to a cap? Will all the principals need to approve a loan or an outside injection of capital?
Will there be principals contributing services to the business? What are the specific services and time commitments? And how will these be valued?
Will there be interest paid on capital contributions? If so, what interest rate will be charged?
Under what circumstances can capital contributions be withdrawn from the business? How will the withdrawal be valued?
Can there be loans made by the principals to the business? What are the terms and interest rates?
How are profits and losses allocated among the principals?
When are distributions of profits to be made? Who decides? Are there profits that will be retained in the business and not distributed? Will the profits be distributed based on ownership percentages?
What is the fiscal year of the business? If it is different than the calendar year when will the fiscal year start?
What is the accounting method for the business? Cash or accrual method?
How will the business be managed? Will there be Managed Partners? Who are the managers and their titles?
What acts will require the majority consent of the principals?
What acts will require the unanimous consent of the principals?
Who is authorized to handle the funds of the business?
What outside activities of the principals are freely permitted?
What outside or competitive activities of the principals are restricted?
Are the principals entitled to a salary? What is the salary for each principal?
How can new principals be added? Can a majority of the principals recommend a new principal or does it need to be a unanimous recommendation?
How can existing principals withdraw from the business entity?
How can an existing principal be expelled from the business? What actions would cause them to be expelled? Should the value of their ownership be penalized for such actions and how much penalty should be incurred?
If principals withdraw, what happens to their interest in the business?
What happens on the death or disability of a principal?
What happens on a bankruptcy or insolvency of a principal?
What happens in the event of a divorce of a principal’s spouse with respect to the business interest?
What restrictions are there on the transferability of a business interest?
Is there a right of first refusal on transfers of business interests?
What circumstances dissolve the business or cause the busines…
