Contracts, Resolutions, Agreements, and Emails
Many business disputes arise from a lack of documented understanding. Problems with partners, customers, vendors, and employees can be avoided by recording agreements. That doesn’t mean you need to bring in a lawyer to draft a contract if you decide to purchase a new desk, so let’s look briefly at the various ways to document agreements from contracts to emails.
The Most Important Contracts
If you are in a partnership, you need 2 very important contracts. These should be drafted by an attorney. If your business is already operating and you haven’t got these, get on it. The 2 ket contracts are your Operating Agreement and your Partnership Agreement. The Operating Agreement states the terms of operation for your business. The Partnership Agreement states how the partners work together. I could write a book on these 2 documents, but this isn’t the time for a lengthy discussion. What matters most? The Partnership Agreement should define how a partner leaves the business in the event of death, disability, non-performance, and out of a desire to go voluntarily. I see this often: A partner dies, now the business has a new partner. In comes the spouse of the deceased partner. She never thought the business was well-run. She is going to make serious changes. Sound fun? Get a partnership agreement!
The partners, owners, or shareholders of every business should meet frequently and discuss issues involving the business. These should be somewhat formal meetings. That means you take notes. Record and sign the meeting notes, so everyone agrees on what was discussed. If something comes up that requires a decision, draft a resolution. You can do this without a lawyer. “We hereby resolve, effective as of [date], that all purchases greater than $5,000 must be approved by both partners. The agreement to authorize purchase will be drafted and signed by both partners before making the purchase. The agreement will include details on what is to be purchased and the amount to be spent.” All concerned parties sign the resolution, and that now governs how purchases over $5,000 are made. Easy. Resolutions can save a lot of discomfort.
An Agreement can be made outside of a meeting. As in the previous example, we made a resolution that governs spending. Then, when we need to make a big purchase, we draft a simple agreement that complies with the resolution. “We agree that Bob Jones will obtain 3 quotes for a new air conditioning unit. Bob will decide as to which unit is best for our business and we agree that Bob may spend up to $7,000 on this unit including installation.” All concerned parties should sign the agreement.
Be careful here! You can use Email for simple agreements. “Joe, I need to take 3 days off next week because my son is going to check out a college and I want to be there.” Can’t this be a simple verbal exchange? Sure. But if it comes up later that someone is taking too much time off, you will be glad that you documented these ‘away times’. Here’s the caution: Don’t be sneaky. “I need a little time off to help my son pick a college” isn’t clear enough. Does that mean you plan to take a month off to visit colleges? You may think so while your partner assumes you’ll be gone for a day.
You see how the seriousness determines which format to use? It’s nasty to require a resolution at a formal meeting to give your partner a day off. That will only add tension.
On the other hand, making a $7,000 decision by email can also lead to trouble because, even though there is apparent agreement, that agreement wasn’t reached after proper discussion.
I can often get a tense relationship back on track by helping partners set up processes to document agreements. If you need help with this, reach out before the trouble starts and you will save a lot of money and grief later.
Chris Reich, TeachU
Many business partnership problems can be avoided by documenting agreements. This requires a process. If you just write up what you want and expect your partner to agree, you might make things worse. I’d be happy to help you develop a process for reaching agreements.