Protecting Your Interests: Common Mistakes to Avoid in Business Ventures

Protecting Your Interests:  Common Mistakes to Avoid in Business Ventures

The start of a new business venture is a time of excitement, optimism, and hope for the future. But anyone taking on a new business venture must also be sure to protect himself or herself.

Here are mistakes to avoid when going into business with others:

1. Not defining how your initial investment will be used.
   If you are joining a pre-existing business or company, the current owner or members may ask you to make a financial contribution, or “buy-in.” Make sure that any financial contribution you do make is reflected in writing, as part of a Partnership Agreement, Joinder Agreement or Operating Agreement and signed by the parties. Define clearly how your investment will be used and how it will not be used, and in what circumstances you will receive returns on your investment.
2. Failing to define the roles of the members of a business.
   Every company needs an Operating Agreement which specifies what everyone’s roles will entail. This will include the individual’s responsibility to the business as well as the individual’s responsibility to the other partner(s) or members. If a partner or member fails to execute a task that was their responsibility, this could result in liability for the company. Having an Operating Agreement in writing and signed by the parties will protect you if a partner or member fails to fulfill his or her duties.
3. Failing to address the dissolution of the business.
   The business you are looking to create may not last forever. Business relationships sometimes end with tension and less than amicable circumstances. It is best to think long-term and define when and how dissolution can occur, what steps have to be taken, and how assets will be divided up in the event of dissolution.
4. Using an agreement you found on the internet.
   Looking to save on the start-up costs of a business, some may look to the internet for an example or template of an agreement to form their business. This is a mistake. Contracts found online are not drafted with your specific needs in mind. You will often find contract language that is long-winded and not tailored to protect your legal interests in the business. Likewise, online contracts are often lacking in provisions that are necessary to protect you.
5. Not consulting with an attorney.
   Consulting an experienced business attorney will best protect your interests, in both the short and long term.

This is not intended to be legal advice. You should contact an attorney for advice regarding your specific situation.

Lauren Scott is an associate and practices civil and commercial litigation. She can be reached by phone at 845-764-9656 and by email.