#17 When your agreement is not in writing
A question I get asked a lot is on the topic of agreements. Do I really need to have them in writing? My answer is always absolutely, without a doubt, yes. I can’t stress highly enough how vital it is to make sure you have your agreements in writing and to make sure they are crystal clear right from the outset.
In this episode, I hone in on the importance of partnership agreements in particular. Having spent the first 12 years of my career in litigation and dispute resolution, I’ve seen it go wrong time and time again and a failure to have a rock solid partnership agreement in place is one of the all too common scenarios that lead people to court. If only they had understood that prevention is better than cure.
Drawing on an example of a recent client of mine, I discuss a scenario where four business partners had no partnership agreements in place and describe the devastation that happened when a dispute took place, leaving no party happy with the outcome. I talk about the importance of clarity in your documents, putting your exit plan in writing and how doing so will leave no room for misaligned expectations.
Starting a business is a lot like being in love. Everyone is happy at the beginning, which makes this the perfect time to get all the details nutted out. Then, when disagreements inevitably arise, you’ll have a rock solid and crystal clear document to refer back to, avoid unnecessary disputes and put the focus back on making your business a success.
TOPICS DISCUSSED AND WHERE TO FIND THEM:
[1:25]: How people often take disputes to court because their agreement was not in writing
[2:25]: Record your agreement in writing, do it at the beginning and also including your exit strategy so that everything is crystal clear
[4:15]: Case study: A business partner assumed the other partners would work the same hours which caused frustration and tension to arise
[4:45]: Because there was no written agreement in place, the relationships became strained and a partner wished to exit after 12 months of business operation however there was no exit strategy in place.
[6:15]: It becomes very expensive when resolution can’t be achieved without the help of a professional adviser and negatively impacts the value of the business
[7:00]: The circumstances could have been avoided if they had negotiated crystal clear agreements before they started
[8:00]: In the absence of an agreement, lawyers refer to the partnership act, which isn’t necessarily favourable
[8:25]: No one was happy with the outcome because they felt they were entitled to more, which is the harsh reality of these disputes
[9:15]: When going into business with friends, it’s even more critical to get your agreements in place because you’re risking more