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A handshake deal isn’t enough to start a company

On Behalf of | Dec 30, 2019 | Intellectual Property |

You want to start a business, and the person you’re working with is a friend. You don’t feel like you need a legal agreement. In fact, if you ask for one, you think they’ll be offended. Don’t you trust them?

These feelings are common, but they can lead to a lot of issues. If all you have is a handshake deal and things go south — maybe years from now — how do you prove what you both agreed to? You may want to consider doing the following:

  • Inviting witnesses to your conversations so at least a third party can back you up.
  • Sending emails talking about the handshake deal, perhaps framing them as a “thank you” message and writing out the details.
  • Making copies of any text messages, letters, or emails so that you can’t lose them.

These steps can help, but they’re not always enough. One potential issue is that you may never discuss important points, such as:

  • What ownership percentage you each have
  • What one person has to do if they want to leave the company
  • Exactly what obligations you both have
  • What steps are required to sell the company
  • Who gets to make decisions about the future of the business
  • How much you each get paid
  • Who gets to do the hiring and firing of employees

By far, the best thing you can do is to start a company with an official operating agreement. This forces you to have these discussions and puts everything in writing. Make sure you know exactly what legal steps you will need to take.