The scene: gray fog of indecision faced by new business owners. You walk up to a corner where a Max Headroom character opens up a dark trench coat and says, “Pssst. . . I got a document for you. Three hundred bucks. Good deal.” And you decide to entrust what will soon be a multimillion million-dollar venture involving complex legal relationships to the guy on the corner. Or, in today's age, a talking head on a website. Yes, I'm being facetious, but it is not too far removed from the truth.
Dowloading Legal documents offline
As a business litigation attorney, I am constantly amazed at how many clients approach us to represent them in complex lawsuits involving pre-printed documents or documents downloaded from the Internet. At the end of the day, the question always arises as to what the parties agreed to. Whether the agreement is something as simple as a sales agreement, a promissory note and security agreement to complex partnership agreement in a growing company, the signatories to that agreement are usually bound by the terms of clauses within the agreement that are wholly inapplicable to the business relationship.
Why download a document from the internet?
So, why do people resort to copying or downloading documents from Internet to control some of their most complex legal relationships? It would be too easy to say it is cost. Because if cost was the only factor driving the decision-making process, cost should also include the possibility of being in a lawsuit or arbitration involving the downloaded documents at issue.
- Most times, clients would say that they "just wanted a standard document." I'm not sure I understand the rationale. This document is what states the term of the deal you have struck. There is no “standard” deal any more than there is a “standard” business. If people were willing to just accept what was standard, they probably wouldn’t bother launching a new business in the first place! Is a document just a piece of meaningless paper? Or is it an agreement to serve as a safeguard if the parties should ever disagree or come to the proverbial fork in the road?
- Another reason that business people use internet forms in their business could be because none of the business partners want to involve an attorney, who may be known to one party, but not the other, in a new business venture. Typically, they are concerned about who the attorney’s client is – is it the business, or is it to the partner that knows the attorney on a personal level. Simply stated, a business lawyer must decide whether he or she represents an individual in the business or the business as a whole. This is a critical long-term decision. If the attorney represents the business, the attorney cannot represent one owner against another owner even in the case of a partnership dispute. The attorney may, however, represent the business against threats both external and internal to the business, even from a departing former business partner who seeks to harm the business or take valuable intellectual property, client information or financial information concerning the business.
The rights and obligations of the business owners to the company must be clearly defined in the shareholder agreement/partnership agreement. These rights and obligations to the business and its operations must be negotiated, as no two people have the same approach to how the business is run, and how the confidential or proprietary information of the business should be treated.
Defining Roles in business
While it makes sense that first dollars, especially in a startup venture, should be used to capitalize and grow the business, once operations commence, the roles and obligations of the founders must be clearly laid out. Putting off the decision-making process on defining the partners' roles and responsibilities after the business achieve certain milestones is practically impossible. Many times, one or more of the partners will take the position that the business is operated without such guidelines since inception, and they will not agree to any restriction after the fact.
A business venture is one of the most complex legal relationships, involving personalities, profits and contemplated exit strategies. To ensure the business continues to grow, even with such dynamics, the business owners must have their first negotiation with each other before they each assume certain roles within the company. Because once those roles are congealed, defining rights, privileges and obligations between the equity members and the company (and each other) becomes an exercise in futility. Or, at best, the partners adopt a toothless set of protocols, not wishing to upset their own position.
At the Vethan Law Firm, P.C., we live our motto: Your Problem is Our Business. We work with business people to incorporate governing structures early in the business relationship.