R. Shawn McBride recently spoke about possible fallout with partners and how to prepare for it.
Hey, everyone, it’s Shawn here with you and dealing with common questions we’re getting about business partnerships. So much of my business law practice and my business strategy practice revolves around partnerships. I think partnerships are fantastic vehicles. But a lot of people get questions about partnerships and what they can do. And one of the common questions we get is, as a transaction evolves or a business grows, can my partner really do that? Can they do different types of transactions on behalf of the business, or are they required to run it by you?
And what we’re gonna say here is we’ve gotta go back to two things, we’ve gotta look at the state law in play, and we’ve also gotta look at the authorizing documents or the entity documents, so if you’re an LLC like many people are, you probably have a certificate formation file with the state. If you’ve done things properly, you probably also have an LLC agreement, a document which sets forth how partners interact with each other within the partnership. So, hopefully, those documents are there. We’re gonna wanna look at those, and we’re gonna look at applicable state law.
Now typically, state law is gonna require that you have a majority consent to do things. We’re gonna look at the ownership percentages. Are you in the majority, are you in the minority, or are you 50/50? That’s gonna give us some idea under state law. But typically, the state law can then be modified by your limited liability company agreement, company agreement, or operating agreement – all different titles given to the same document – that internal governing document about your LLC and your affairs. Or if its corporation – the corporation bylaws, and shareholders agreements. These documents are gonna control, so we’ve gotta go in there and read them and figure out what’s going on.
A lot of times, one partner’s given a lot of authority. But the qualification here is, while they’re given an authority, unless we do something special, they typically have fiduciary duties, which means they owe you a duty. So how do you get to the answer, right? We’ve talked about a lot of different things.
Number one, look at your governing documents. Read them, see what they say, what do they provide for? What does your state law say about how they’re run if your documents are silent? And then of course, you need to talk to probably an attorney here at some point because there can be nuances and interplay that’s just difficult for a business owner to really get to, unless you spend a lot of hours digging through these statutes, understanding how they interplay, and understanding how the company agreements work with the statutes, you may miss something.
So if it becomes a critical issue, you wanna get some outside expert advice. The best thing we can do obviously is avoiding these issues before they happen, that’s always our goal with our clients. So if you’re seeing this kind of thing, hopefully, you’re ahead of the curve. If not, let’s figure out how we can get ahead of the curve with some planning, updating your buy-sell, updating your company agreement or your corporate documents can go a long way. And that’s something you probably want to be looking at sooner than later. So, get ahead of it.
If you want more tips on how to get this stuff updated, what kind of provisions to put in there or what to do with your company agreement, check out the R Shawn McBride business blog. Check out the R Shawn McBride public page on Facebook, you’ll see lots of videos like this that will help you run your business better and do great things with your business.
And of course, if I can help you, or if I can come in and talk to a group, I do a lot of public speaking, if I can come in and speak about these issues and kind of get these things started for you, I would love to help you and get things moving in the right direction for you and your business, so. Signing off, R. Shawn McBride, check out me, check out the McBride for Business YouTube channel, let us know how we’re doing, send us emails about what content we can provide for you, and I look forward to talking with you soon.
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This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. Freeimages.com/photographer Andy Steel.
About the Author
R. Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment, gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can email R. Shawn McBride or (214) 418-0258.
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