Lack of Documentation is a Common Problem for Small Business Owners
When you have an idea for a small, closely held business and you are looking for partners to join your venture, it is most common to go into business with people you know. Usually, a new business owner chooses someone he or she knows quite well. Often, that means either a family member or a very close friend. After all, who’s better to start a new company with? Good feelings and unbridled optimism – or sheer terror – often cause new business owners to overlook certain things. here, referring to the ever-prevalent, rather pesky issue with lack of documentation.
When your business partner is your sibling, or your best friend, “who needs documentation” seems to be a common mantra. It could be caused by an abundance of trust, or a desire not to spend money on legal fees. Lack of formalities can take many forms, including not having an operating agreement, which can even mean not having the agreed-upon financial arrangement set forth in a writing. I have heard majority owners say:
“Why would the minority owner have the same deal as I do, when I am taking most of the risk?”
“No, he was only supposed to become an owner if X happened, and X never happened, so he isn’t really an owner.”
Or, my personal favorite:
“I told him I was skimming the cash. He agreed, but now claims he knew nothing about the business even having cash.”
This is especially interesting when the business doesn’t take credit cards and only takes cash!
Having over 3 decades of business divorce litigation experience, the common denominator among these claims is that those involved are usually telling the truth, at least their version of the truth. When you started a business 20 years ago and never wrote down what your agreement was, never kept detailed business records, and nobody ever asked to see any documentation, it’s no wonder that there later became a divergence about just what was agreed to at the outset. Did the parties really agree that the compensation would be severely skewed towards one party? Or was it just done for so long without objection that consent was just assumed?
To avoid these issues, if it is not too late – document everything. But if that ship has sailed, an experienced business divorce lawyer in New Jersey will help you determine how to navigate whatever current dispute you may be having, even with sparce documents to guide one through the thicket. Please do not hesitate to reach out to me at dcroberts@norris-law.com.