It seems like a great idea to go into business with old friends or family–so much warmth and love spread all around. Unfortunately it doesn’t always seem like a great idea years later. This can be true whether or not a business is profitable, as the following cases will illustrate.
In one case that I handled, the shareholders were family, trapped in a situation lawyers are quite familiar with, called a “deadlock”. In a deadlock situation, none of the shareholders win, because no one has a majority of the shares. Of course, contractual provisions such as voting trust, proxies, dividing up the directors, or electing particular individuals as officers with specific powers, can all be used to move around a deadlock. But most people never consider these things. They move into a business, happy to be making a profit, without anticipating that loved ones or trusted friends can embezzle funds, take vacations on corporate time, or make poor business decisions for which all partners are liable.
Obviously, all partnerships and corporations, including LLCs, should have a detailed agreement to protect all parties concerned. In the case where this has not occurred, many people can be hurt and embittered. In addition, partners and shareholders can be driven into bankruptcy, with subsequent stress such as poor health and broken relationships.
In another case that I handled, the chief officers of the corporation embezzled funds to which they had no legitimate right. Of course, those who are dishonest will rarely admit that fact. These types of cases usually go before the court, with great expense for all concerned. In the event that a financial audit is done, often the dishonest party can be proved to be liable. Nevertheless, with significant bank loans against the business and the individuals, it can be a long painful struggle getting out of this financial quagmire.
For this reason, setting up, continuing, or dissolving business relationships should be done with counsel from attorneys with decades of experience in these matters. Otherwise things can get much too expensive and discouraging for all parties involved.
Does this sound familiar? If so, please do not hesitate to call and ask a few questions. I should be able, within a short phone consultation, to assess if I can be of service to you. Please call (317) 266-8888, and ask the receptionist to speak to Mike Norris personally. Or, you can email me at email@example.com. Looking forward to hearing from you soon.