When you say “legal documentation”, virtually everybody in business immediately thinks of contracts, especially sales and service contracts. Of course you need those, but what about using legal documentation to determine exactly how your business will operate, even in your absence? This is of course a complicated subject, but let’s explore a simplified version of a few internal documents that can help you succeed.
Internal operating agreements are the legal backbone of any business with more than one owner. They determine how the company will go about business, how decisions will be made and even how conflict between partners will be resolved. Each of us take our businesses personally (whether we like to admit it or not) and that can be difficult in cases with multiple owners because everyone has their own opinions. Disagreements will eventually happen no matter how much you’re “on the same page” and a properly drafted operating agreement can nip them in the bud quickly and help prevent tension between owners. The most important thing is to have your agreement in place BEFORE conflict arises. If everyone knows the rules up front and someone breaks them, they leave themselves little defense. More importantly though, it lays out if voting is necessary for specific decisions and what percentage of vote is required to move forward, resulting in a systematic approach to your business (side note: systems are good!).
Another good way to lay down the law is through employment contracts. These should always make your expectations clear. After all, when you hire someone, they are representing your business and need to be held accountable to act accordingly. This goes for independent contractors too! If you’ve hired someone to work on a project for YOUR client, their work and professionalism will directly reflect on your business. The client doesn’t care if they are 1099’d or W2’d and will be contacting you if there’s ever a problem.
The moral of the story is, don’t think of legal documentation as just a burden or something you have to do, think of it as another tool at your disposal to drive your business in the right direction.