Business Formation And Entity Selection

Forming Business Marriages

Bernstein & Feldman, P.A., generally does not do domestic relation work, but our Annapolis, Maryland, law firm does counsel clients in forming business organizations, which in effect are business marriages. As with a marriage, when two or more people join in a business venture — regardless of the form of entity — they should expect a high degree of loyalty and honesty to each other and to the enterprise.

Like people about to marry with each party having substantial assets, a well-crafted Shareholders' Agreement and Buy-Sell is analogous to a prenuptial agreement and is an absolute necessity to delineate the responsibilities and obligations of each party both to third parties and one another.

This is true whether individuals are forming limited liability companies (LLCs), limited liability partnerships (LLPs), entering into partnership agreements, or forming corporations or any other form of business entity. Although every situation has its own issues, the common threads that generally need to be addressed are:

  • How the business is to be funded. Many times, one person has the idea and time and other parties have the capital. There should be a clear understanding of each party's obligation to contribute capital and under what circumstances. Just as important, if financing is to be obtained, the responsibilities of the parties to their spouses must be known if they were to pledge their assets for the enterprise.
  • How the business is to be operated. Is the ownership equally divided, and if not, what rights does the minority owner have to exert any control? Is one owner going to be the manager and the other a "silent partner," or is unanimity required for all decisions? If the ownership is equal, how are disagreements going to be addressed? There are many methods, from a third-party decision-maker to a buyout, that can be used if a stalemate is reached.
  • What happens when one partner wants to or has to sell his or her interest, or such interest is attached by a creditor. There should be an agreement as to buy-sell provisions. These provisions need to also involve spouses to obviate the possibility of one owner becoming involuntary co-owner with the ex-owner's spouse.
  • Where the business is headed. The agreement also needs to address the future growth needs of the enterprise. Businesses that we have established have grown into substantial companies, and the owners must determine a clear path for growth and the sharing of ownership with new investors and employees. Bernstein & Feldman can help you establish, organize and grow your business. If you do not have the proper mechanisms in place to clearly delineate the responsibilities and obligations of each owner, what often occurs is conflict which we call the business divorce.

To talk about your legal concerns with our team of Annapolis business formation attorneys, please contact Bernstein & Feldman, P.A., for an initial consultation.