For many people, owning a business is an extremely rewarding way to make a living. When starting a new business, it is important to ensure that it is structured properly to avoid problems down the road. This is especially true when the business will have multiple owners.
Type of Inter-Owner Agreement
The specific type of inter-owner agreement will depend largely on the way the business is structured. Corporations, for example, will typically use shareholder agreements. LLCs, on the other hand, will have an operating agreement in place. Both the shareholder agreement and the operating agreement are forms of an inter-owner agreement.
What Do Inter-Owner Agreements Do?
The purpose of an inter-owner agreement of any type is to clearly identify the rights and responsibilities of all owners of a business. This can do a lot to avoid conflict down the road, especially if the business grows and changes. Some of the items covered in most good inter-owner agreements will include:
- How to Exit the Company – Detailed instructions on what will happen if one or more of the owners wants to leave the company.
- Death of an Owner – What will happen to the company if one of the owners dies? What happens to their share of the company?
- How Profits Are Used – When the company is making a profit, it is critical to identify how these profits will be used. They could be distributed to the owners, reinvested into the company, or any number of other things.
- Financing Requirements – Should the company require additional monetary investments, where should this money come from? Do the owners each put in an equal amount? Is one owner responsible for funding certain aspects of the company?
- Decision Making – It needs to be clear how important decisions will be made. Is there one person in charge? Does it go by a vote of all the owners? Is there a board of directors?
Depending on the size and type of the business, an agreement could include many other topics. Even when the owners are on the same page about the company, it is critical to create this type of agreement. In fact, creating an inter-owner agreement when things are going well is ideal. This can help get things agreed upon before any problems arise.
Now Is the Time to Create an Agreement
Whether you’re just working on establishing a business or you’ve been running a business without this type of agreement for some time, now is the best time to have one created. Contact the law office of Carla D. Aikens to learn more about how these agreements are created and get the process started.
Carla D. Aikens, P.L.C.
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