Why Write it Down? We Trust Each Other

Forming a relationship is generally complicated. Some bonds are created from selflessness or love, as with marriage or life partnerships. In most of those emotion-formed cases the plan is to have merger of efforts, income and assets without any intention that they would ever be divided out again. Not so in business. Both the business organization and the people who compose it will evolve – the very concept of success and expansion implies that. The evolution does not always occur down the same paths or toward the same goals. . .

For those reasons a contract among the owners or principals recommended for all businesses other than pure proprietorships. Obviously if you are the only participant you don't need a writing to describe your duties, obligations and commitments. If there is more than one person, though, the basis exists for a subsequent misunderstanding.

"But I am forming this business with my best friend - a person I've known and trusted since grade school. There is nothing about him I don't know." Well, you might be surprised. It wouldn't hurt for each of you to obtain a copy of a criminal history report on the other. . . and a credit report. Those reports can each be obtained locally based on written authorization from the one whose report is requested. That statement must be written but can be informal; simply permission which is signed, dated, and contains the date of birth, social security number and current address. In Georgia if the person is not present to request the report himself, the document should be notarized to authenticate the signature. Cost? Generally less than $25.00 each, without extensive processing delays [often while standing at the request counter]. This is not to say that you should not go into business with someone who has a criminal record or poor credit. Merely, you should know about that fact if they do.

"But a contract? Something that describes who we are [we already know], what we are doing [we are working on figuring that out], what each of us is providing financially, how we will split the income after expenses, who will decide what 'expenses' are and should be, what happens if we cannot reach a decision in the midst of a dispute, how we split things if all does not go right, and a myriad of other things. Why a written contract? We've talked it over and think we have agreed on most of that stuff."

Well, DEATH, DISABILITY, DIVORCE, and DECEIT are good words to help give perspective. If your business is your 'life, fortune and sacred honor' (not to mention the mortgage and groceries) you need to consider whether you really want to end up handling decisions with your co-owner's ex-wife-as-custodian-of-his-minor-children after a Harley motorcycle slips him into a highway overpass piling. What if he bungee jumps and humidity has stretched the rope? What if she is enjoying a luscious chicken entrée at a continuing education seminar and dies from a quick attack of food poisoning? Or is merely injured so badly that addictive pain medication is needed for the far foreseeable future? Death is much easier to plan for than a disability which has an indefinite but dismal prognosis.

"Fair" is a difficult word in business. Often the line must be reluctantly drawn between generosity and sympathy to our injured (not in the scope of the business) comrade and the survival of the business itself. It can be worse still if the injury WAS in connection with business activities and therefore an expense with which the now understaffed company must deal. So how do such hard decisions become less difficult?

Answer: discuss and make plans while everyone is amiable and working together -- Before a crisis looms on the horizon. Have written confirmation of your decisions. This does not need to be an attorney drafted multi-page typewritten document. The contract can be a list of phrases and diagrams, clear enough to be understood by a disinterested third party, which is dated and initialed by the participants. For example, someone makes notes of a meeting in longhand on a legal pad. At the end of the meeting those notes are shown to the other participants, who agree that the phrases accurately reflect their decisions. Each person initials the page. A contemporaneous contract has come into being. It may not be pretty and perhaps needs substantial cleanup later by an attorney but can a valuable tool when differences of opinion arise in later times.

There are words which can cause enormous problems in new and evolving businesses – such as 'vacation' and 'full-time.' When a recently retired career military man hears the word ‘vacation’ he may think of the thirty day interval to which he has been accustomed on an annual basis. When you say the word 'vacation' to a self-employed person, he may think of that Friday afternoon stolen to put together with a Saturday and Sunday and called 'a long weekend.' Same problem with the composite word 'full-time.' Many of us think '40 hour week,' but what if one person puts those 40 hours behind the counter during retail hours, and the other does '40' but only ten of those are at the store and the productiveness of the other 30 is not easily seen? The old fairy tale about the 'ant and the grasshopper' illustrates many of these relationships – eventually leading to the ant becoming infected with a tremendous case of frustrated hostility. This can be worsened when the parties have merely agreed to split the monies without taking into consideration the problem where one person might be putting in more work time. It is frequently most fair to work out some compensation arrangement based on time, productivity, or other criteria, and then to split what is left over so that the parties are paid based on effort as well as ownership. The formality of having to document decisions may be difficult to implement in a small business and may be very foreign to the nature of the owners. Some effort in the planning stage, however, can reduce or even avoid the complexity of disasters in the future.

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