As Moderator to many family businesses, I have helped with succession planning, compensation planning, and resolving of key questions around the operation of the enterprise. It can be difficult for an adult offspring to talk with Dad about a raise.
As you see, a contract can be legal yet not binding. And, the most important take away is that a promise, even if written up and signed, is not binding. If an agreement is not binding, it isn’t enforceable. I assume you want your agreements between you and your partner(s) to be legal, binding, and enforceable. Let’s look at the pieces that must be included to make a valid, binding contract.
To be fair, many Operating Agreements have at least minimal language regarding a Partner’s voluntary exit from the Partnership. But, most of the time, those clauses are so vague they make the situation worse.
Sometimes, in Partnership Mediations, people will dig into very irrational positions. And sometimes, when there is tension in a partnership, as a professional mediator, I can see an easy solution. When disputants won’t do simple things to protect their business, it makes me want to scream!
If you have read my other posts, you know I strongly encourage people who form Partnerships to create a Partnership Agreement. The document must specify how a Partner can leave the Partnership voluntarily while ensuring that the business is protected from two potential disasters: firstly, by avoiding terms that could bankrupt the business, and secondly, by preventing the admission of unplanned Partners.
Here are more things you need to know if you are opening buyout talks with your business partner.