How A Written Agreement Leads to Trust and Communication
Written contracts have nothing to do with whether you trust fellow investors on their word, or that you believe a "handshake is enough."A written agreement is meant to keep Thanksgiving dinners peaceful and friendships intact. A written agreement, no matter how simple, helps co-investors talk through their goals and consider how they will address challenges before they come up. For example, when can they withdraw money from the investment? What if one member has an emergency? What if the business venture needs more money before it is sold or profits shared? Who will contribute?
The Power of Written Agreements
A good written agreement does not need to be complicated or lengthy. Here are some benefits:
Clear Communication:
Written agreements provide a clear understanding of the terms and conditions of a business relationship or transaction. This includes pricing, timelines, who is responsible for what, and more. By outlining these important details in writing, all parties can have a clear understanding of their role in the agreement, which can lead to smoother and more efficient business dealings. This can be particularly important in family businesses, where assumptions and informal agreements can often lead to misunderstandings and disagreements.Protection from Legal Issues: When dealing with outside businesses, there is always a risk of legal disputes. Written agreements can help protect your and your fellow investors from from costly litigation.
Avoiding Family Disputes:
Family businesses often involve multiple family members, each with their own ideas, goals, and expectations. When running a family business, it's essential to keep personal and professional relationships separate, and that includes legal agreements. By having written agreements in place, family members can avoid disagreements and potential disputes over business dealings. This also provides a level of objectivity when dealing with business decisions, which can help prevent family members from being swayed by personal relationships and stay in alignment.
Increased Credibility:
Having written agreements in place can also increase a family business's credibility with outside businesses. When potential partners or customers see that a family business is taking legal matters seriously and has formal agreements in place, it can help build trust and establish a positive reputation. This can lead to better business opportunities and future partnerships.
Clarity in Succession Planning:
Written agreements can also help with succession planning, which is essential for ensuring the long-term success of a family business. Having clear agreements in place regarding ownership, management, and decision-making can help reduce conflict and uncertainty when it comes to transitioning the business to future generations.
Written agreements are essential to establish clear expectations if you invest with family members or friends. Having written agreements in place can help simplify the way your business - no matter how simple - will operate, and provide peace of mind for all parties involved. By taking legal matters seriously, you can build credibility, avoid disputes, and set themselves up for success in the long run.
Our firm has helped families, small businesses and high net worth investors talk through issues that they may confront when putting the money together. We encourage you to contact us if you have any questions, or would like us to advise your group on common issues that may come up, so we can draft a clearly worded agreement that reflects your common goals.