Documentation either prevents problems or is crucial to an efficient resolution of a problem. Unfortunately, one often doesn’t realize the importance of such documentation until a problem develops, and then it is usually too late.
When starting or acquiring a business, it is important to recognize the need to separate the income, expenses and activities of that endeavor from one’s personal stuff or other business interests. That is normally done by establishing a business entity, like a corporation or limited liability company, to add a layer of personal liability protection. As with most things, a little maintenance goes a long way toward making what one has work when one needs it to. It takes more than just filing the organization papers for a corporation or limited liability company with the Secretary of State to make the liability protection work - one must file the annual reports with the State and maintain official company records with annual minutes reflecting the business activities, even if they are simple and routine.
It is human nature to be full of optimism when starting a new venture with partners, associates and employees. It is more difficult to take the time and a little money to document peoples understandings and agreements when everyone is getting along so well. But that is the time to document such things. Some people feel it suggests a lack of trust in the other person or their word. I disagree. It is a way to confirm and prove that people do have the same understandings and agreements as to the various aspects of the business relationship. Over time, or more especially when relationships get difficult, people have a way of forgetting verbal understandings or agreements, or realize that they never really had a “meeting of the minds” regarding certain aspects that have now become very important.
The business lawyer supplements the client’s knowledge of their business and its needs with his technical knowledge, but more importantly, the wisdom of his experience and years of practice working with many and varied clients and dealing with all manner of transactions and difficulties arising from those transactions and other things simply gone wrong; not only in dealing with the problems, but being aware of potential issues and problems and working to avoid such problems being repeated by better documentation.
Success is in the details, from deciding which sort of business entity to utilize; to creating employment contracts and shareholder agreements between partners, with possible buy-sell provisions in the event of death, disability or a change of heart in the desire to participate; to dealing with ongoing business situations, contracts, customers and collections; to decisions to sell the business and protect yourself from future liabilities, and insuring collection of the purchase price after a sale of a business entity; to damage control in the event of an unresolvable dispute or failure of the business enterprise. The earlier proper documentation is formulated, the more likely one can avoid problems down the road.
"The wise know their weakness too well too assume infallibility; and he who knows most, knows best how little he knows."