You and Your Business Partner Get Along. That’s Exactly When You Should Make an Agreement.

Starting a business with someone can feel exciting.

You have an idea. You trust each other. You are building something together. Everyone understands what they are supposed to contribute, and no one expects the relationship to fall apart.

That may remain true for years.

But the best time to decide what happens when business owners disagree is while everyone still agrees.

Waiting until the relationship has deteriorated can turn questions that could have been negotiated thoughtfully at the beginning into expensive, emotional, and sometimes business-threatening problems.

“We Trust Each Other” Is Not the Same as Having an Agreement

An agreement between business owners is not necessarily a sign of distrust.

It is an opportunity to put the owners’ shared expectations into writing while they are still shared.

For a Virginia LLC, an operating agreement can address the company’s affairs, how the business will operate, and the relationship among its members. Virginia law also leaves a number of matters subject to the company’s operating agreement, which makes the document much more than paperwork to place in a corporate records folder. Virginia Law

Depending on the business structure, owners may use an operating agreement, shareholders’ agreement, partnership agreement, or other governing documents.

Whatever the document is called, the larger question is the same:

Have the owners actually agreed on how they are going to own and operate this business together?

Talk About the Uncomfortable Questions While Things Are Good

At the beginning, business partners are often focused on getting started.

That makes it easy to postpone conversations about what happens when circumstances change.

But an owners’ agreement can force conversations that are much easier to have before anyone is angry.

For example:

Who owns what percentage of the business?
What is each owner expected to contribute?
Who has authority to make day-to-day decisions?
Which major decisions require approval from both—or all—owners?
How will owners be compensated?
Can owners take distributions, and under what circumstances?
What happens if the owners disagree on an important decision?
Can an owner sell or transfer an interest?
What happens if someone wants to leave?
What happens if an owner stops contributing to the business?
What happens if an owner becomes incapacitated or dies?
How will an owner’s interest be valued if a buyout becomes necessary?

You do not need to expect any of these things to happen tomorrow to decide how they should be handled if they happen eventually.

50/50 Ownership Does Not Answer Every Question

Two owners may decide that splitting the company equally feels fair.

But 50/50 ownership does not automatically tell you what happens when the owners disagree.

Imagine two equal owners who cannot agree about taking on debt, entering a major contract, hiring someone, making a large purchase, or changing the direction of the company.

Neither owner necessarily has the votes to simply overrule the other.

An agreement can establish how decisions are made and create procedures for addressing deadlock before the owners are actually in one.

That conversation can feel unnecessary when everyone is getting along.

It becomes much more important when each owner is convinced that their position is the right one.

What If One Owner Wants Out?

Business relationships change.

An owner may receive another opportunity, move, retire, experience financial difficulties, lose interest in the business, or simply decide that the partnership is no longer working.

The remaining owners may have very different opinions about what should happen next.

Can the departing owner sell the interest to anyone?

Do the other owners get an opportunity to purchase it first?

How will the interest be valued?

Does the company have an obligation—or even the financial ability—to buy the owner out?

Virginia’s default LLC rules distinguish between transferring an economic interest and becoming entitled to participate in management, while allowing an operating agreement to establish different rules in many circumstances. Virginia Law

Those distinctions can become extremely important when an owner wants to leave.

Death and Incapacity Belong in the Conversation Too

An owners’ agreement should not only contemplate conflict.

Sometimes the relationship changes because something happens that nobody wanted.

If one owner dies, the surviving owner may suddenly be dealing with the deceased owner’s estate or successor. Under Virginia’s LLC statutes, death is generally an event causing a member’s dissociation, and the operating agreement can significantly affect what follows. Virginia Law

That creates questions worth addressing before a crisis:

Should the remaining owners have an opportunity to purchase the interest?

How will it be valued?

What happens to management?

How does the business plan coordinate with each owner’s estate plan?

The same type of planning can matter if an owner becomes unable to participate in the business because of incapacity.

Do Not Wait Until You Need the Agreement

When business owners are already fighting, negotiating becomes harder.

Every provision may suddenly have financial consequences. Every proposed term may be viewed through the lens of the existing dispute. Something that might have felt reasonable three years earlier can feel completely unacceptable when one person believes the other has wronged them.

That is the predicament an agreement can help avoid.

The point is not to predict every possible disagreement.

It is to create enough structure that the owners are not forced to invent the rules while they are already fighting about the outcome.

Good Relationships Still Deserve Good Documents

You may trust your business partner completely.

You may have been friends for twenty years.

You may be siblings.

You may never have a serious disagreement.

Hopefully, you don’t.

But a strong relationship and a thoughtful owners’ agreement are not competing ideas. In many ways, putting expectations into writing can protect the relationship by reducing the number of important issues left to assumption.

Everything may be wonderful when you start the business—and it may stay that way. But if the relationship does deteriorate, that is usually the worst time to begin negotiating the rules of the relationship.

Having those conversations while everyone is still sitting on the same side of the table can give the business a stronger foundation for whatever comes next.

Building a Business With Someone Else?

Basis Law PLLC assists Virginia entrepreneurs and business owners with operating agreements, governing documents, contracts, and other business law matters.

Schedule a consultation to discuss the legal foundation of your business and whether your existing agreements reflect how you actually intend to operate together.

This article is provided for general informational and educational purposes only and does not constitute legal advice. The rights and obligations of business owners depend on the entity structure, governing documents, facts, and applicable law. Reading this article, visiting this website, contacting Basis Law PLLC, or scheduling a consultation does not create an attorney-client relationship. Representation requires a written engagement agreement with Basis Law PLLC.

What Happens to Your Business If Something Happens to You?

Business owners spend a lot of time thinking about what happens inside the business: clients, contracts, employees, revenue, taxes, and growth.

But there is another question worth asking:

What happens to the business if something happens to you?

That does not only mean death. An illness, accident, or other period of incapacity could leave you temporarily or permanently unable to run the company.

If the business depends heavily on you, the legal plan should account for both possibilities.

Ownership and Management Are Not the Same Thing

One of the most important distinctions in business succession planning is the difference between owning the business and having authority to operate it.

For example, a business interest may ultimately pass to a spouse or child after an owner’s death. That does not necessarily mean the person who inherits the economic interest automatically receives the same management rights the owner previously exercised.

For Virginia LLCs, the operating agreement can be especially important. Virginia law generally treats a member’s death as an event of dissociation, while the operating agreement can alter many of the default rules governing what happens afterward.

So “my spouse gets my business” does not fully answer the succession question.

You also need to ask:

Who will have the authority to make decisions?

What Happens If You Are Alive but Cannot Run the Business?

Succession planning should not begin at death.

Imagine a business owner is hospitalized and unable to communicate for several months.

Who can access what is needed to keep the company operating? Who can deal with contracts, financial matters, employees, vendors, or other business decisions? Who has authority to act with respect to the owner’s business interest?

A properly drafted power of attorney can be an important part of incapacity planning. Virginia law permits an agent to receive substantial authority concerning the operation of an entity or business when that authority is granted, but that authority remains subject to governing documents and agreements affecting the entity or ownership interest.

For a business owner, a power of attorney should therefore be considered alongside the company’s operating agreement, bylaws, shareholder agreement, and other governing documents—not in isolation.

Your Operating Agreement May Matter as Much as Your Will

Business owners sometimes think succession planning is simply an estate-planning question:

“Who gets my ownership interest when I die?”

But the company’s own documents may contain important provisions concerning death, incapacity, transfers, management, or buyouts.

Depending on the entity and its governing documents, there may be restrictions on who can acquire an ownership interest, requirements for purchasing an owner’s interest, procedures for determining value, or rules governing who can participate in management.

That means your estate plan and business documents should tell a consistent story.

If your will or trust anticipates one result while your operating or shareholder agreement requires another, someone will eventually have to sort out the disconnect.

Do You Actually Want Your Family to Run the Business?

Inheritance and management are different questions for another reason:

The person you want to benefit from the value of your business may not be the person you want running it.

Perhaps your spouse depends on the income generated by the business but has never participated in its operations.

Maybe one child works in the company and another does not.

Perhaps you have a business partner who would never want to operate the company with your heirs.

Or maybe none of your family members want the business at all.

Instead of simply asking:

“Who should inherit my business?”

Consider asking:

“What do I want the business to look like without me?”

The answer might involve continued family ownership, a buyout, a sale, another owner assuming control, or another succession strategy.

If You Have Business Partners, Plan for the Relationship After You

Your death or incapacity does not affect only your family.

It can also affect the people who own the business with you.

Consider a company owned equally by two friends. One dies and intends for everything to pass to a spouse.

The surviving owner may suddenly have to confront questions neither owner previously addressed: What rights does the deceased owner’s successor have? Should the surviving owner purchase the interest? How is the business valued? Where will the money for a buyout come from?

Those questions are much easier to address while everyone is available to participate in the conversation.

The Plan Should Include More Than Legal Documents

Even excellent legal documents cannot tell someone where your critical business information is located.

A practical succession plan should also consider what someone would need to keep the business functioning.

That may include identifying key professional advisers, banking relationships, insurance information, important contracts, employees or contractors with critical responsibilities, recurring obligations, and where essential business records are maintained.

This does not mean putting passwords and sensitive credentials into a will.

It means considering whether the people who may eventually step in would actually know enough to begin.

Your Business Is Part of Your Estate Plan

For many entrepreneurs, the business is one of their most valuable assets.

It may also be the source of the family’s income, an employer of other people, the product of years of work, and something the owner hopes will continue beyond them.

That makes business succession both a business-planning issue and an estate-planning issue.

The goal is not simply to decide who gets the business.

It is to coordinate ownership, management, incapacity planning, governing documents, and the owner’s estate plan so that everyone is not forced to figure it out during a crisis.

What Would Happen to Your Business Without You?

If you own a business, consider three questions:

Who could act if I became incapacitated?

Who would receive my ownership interest if I died?

Who would actually run the business afterward?

If you cannot answer all three—or the answers depend on assumptions rather than documents—it may be time to review the plan.

Basis Law PLLC assists Virginia business owners with business law and estate planning, including helping clients consider how their business interests fit into the larger plan for themselves and their families.

Schedule a consultation with Basis Law to discuss your business and planning needs.

This article is provided for general informational and educational purposes only and does not constitute legal advice. Business succession and estate-planning issues depend on the type of entity, governing documents, ownership structure, individual circumstances, and applicable law. Reading this article, visiting this website, contacting Basis Law PLLC, or scheduling a consultation does not create an attorney-client relationship. Representation requires a written engagement agreement with Basis Law PLLC.