Making It Legal:

Turn off the TV.  Leave the e-mail alone for an hour.  The kids will fend for themselves.  It’s time for your Hour of Power–and learning how to create a business partnership that works. Just one hour–8 to 9 p.m. ET–can take you from tailspin to steady . . .  so make sure to sign up for The Entreprenur’s Prenup teleclass now!

If you have any inclination to work with a business partner, I hope you’ll be joining me for my FREE Entrepreneur’s Prenup teleseminar.  It’s easy to identify the high points, but the low points tend to get glossed over.  Learn what they are so that you can avoid them!  Sign up today!

It’s not as simple as it seems.  Business partnerships involve more than just finding a compatible playmate.  Learn how to avoid the pitfalls with my FREE teleseminar on Tuesday, Oct 6 at 8pm ET!  For information and registration, visit The Entrepreneur’s Prenup teleclass website!

Drum roll, please . . .  I’m at T minus 16 for the launch of my latest product, The Entrepreneur’s Prenup: How to Choose a Business Partner Who Won’t [bleep] You.  It’s a home-study course that will take you through the top issues to consider when choosing a business partner and how you can screen for the duds.

But for those of you who just can’t wait for the info, register for my free preview teleclass on Oct. 6: Choose the Right Partner and Change Your Business from Tailspin to Steady! For more information about choosing business partners wisely, visit GreatBusinessLawResources.com.

Want to choose the right business partner and change your business from tailspin to steady?  I will be sharing one of the imperative and significant areas YOU MUST KNOW to be sure you’re on the right path with your business partner (whether current or intended). This call will be jam-packed with info you can use right away. Plus, right on the call I will be offering a special bonus, just for you!   Register at: http://bit.ly/prenup_teleclass

Q: If a person is a 50 percent owner in an LLC corporation, is it illegal for that person who owns another company that does the same type of work to go and do work or operate under that business?  Someone mentioned to me that it is a conflict under a law regarding corporate obligation.

A: Your question is a good one, and the answer is not black-and-white.

Generally, unless you have a provision in your operating agreement (or in your state’s law) that prohibits someone from working in two potentially competing companies at once, it’s not outright illegal for someone to do so. However, it certainly raises questions of loyalty.  After all, if you’re involved in one or more companies and a potential client comes in, through which company do you service the client?

State laws do vary, so I’d recommend that you speak to a local attorney to get a definitive answer to your question.  You can find attorneys through your local bar association–look for ones that focus on corporate and LLC law.

Yes, that’s the advice of most of the “success gurus.”  Figure out what you do well–and what you enjoy doing–and leave the rest to someone else.

Listen in to my conversation with Rosalie Lober, PhD., author of the newly-released Run Your Business Like a Fortune 100: 7 Principles for Boosting Profits. We cover:

• Rosalie’s case study of Terra Plantworks, which grew revenue from $3 million to $11 million in three years, by letting go of less-profitable business divisions–and how Terra came to that decision
• The importance of having a fully-integrated business
• Three key steps to doing your due diligence on any strategic alliance partner
• The top three problem areas for most strategic alliances (and, yes, how a written agreement can alleviate them)

From the “No good deed goes unpunished” department:

Q: I deposited more than $20,000 into my business partner’s account under the impression that he would add my name to the new company and to the house I had paid off for him and that he would put my name on the new car title,  too. But none of the above has happened and he refuses to discuss it since I am not going hungry or without a place to stay.

He now says he cannot trust ANY woman to do the right thing in money matters that involve him (But he sure took my money without any qualms).  How can this be resolved?

A: You have a thorny situation on your hands, and I don’t envy you.  Unfortunately, without having anything in writing (which I assume you don’t; otherwise your business partner wouldn’t be as cavalier with your money), your only option right now is to sue him.

You may get lucky in that the threat of bringing a lawsuit (and the costs he’ll incur) may make him reconsider his actions,  either by making you a rightful business partner in writing or by refunding your money.  The catch is that you’d need (and want) to have your own counsel begin this process for you.  If you try to handle this yourself, he may not take you seriously (especially as he doesn’t seem to do doing so now).  Contact your local bar association, as it may be able to give you referrals to attorneys in your area who are familiar with these legal issues.

I was recently contacted by a business owner who felt that he was being cheated by his business partner.  He had nothing specific to go on . . . just a gut feeling . . . and there was no paperwork.  What could he do to protect his investment?

Whether or not he was actually being cheated, there are important steps that business owners can take to monitor what’s going on in their company.

1. Have an open conversation:  It may be tough to do if you’re already concerned about being lied to.  Depending on the size of your investment and your commitment to the company, you may want to bring in a mediator or someone experienced with coaching people through partnership issues.
2. Watch your numbers – -regularly:  Engage a qualified accountant to review the financial books and records–the P&L, income statements and cash-flow journals (as well as bank statements, canceled checks, credit card statements, etc.)  These should give you an idea of how money is actually being spent in the business.  As a business owner, you should be familiar with these financial documents (especially the reports) and review them regularly as a matter of good business “hygiene.”
3. Get copies of documents:  Obtain a copy of the formation documents for the company that were filed with the secretary of state of your state.  Realize, though, that some states don’t require the identities of the owners to be listed on them . . . so don’t get upset if you don’t see your name there.
4. Hire counsel to patch up the gaping holes: Engage an attorney who has experience with business owner relations to review the “paperwork” you’re supposed to be provided and to create the shareholder’s (or operating) agreement for the company.
5. Consider whether to stay the course.  Suspicion breeds mistrust . . . which leads to a contentious and fractured business relationship.  If you can’t trust, why would you want to stay in business with this person?  If there’s no paperwork yet, and before enmeshing yourself further with an untrustworthy partner, you may want to pull out of the venture altogether, recoup what you can of the investment and take your money elsewhere.  This is a thorny area, so let your attorney help you do so as cleanly as possible.

You may have plenty of opportunities to get it (legally) right . . . but not as many to hear me speak on the subject! 

For those of you near Brooklyn, N.Y., on July 15, stop by the Brooklyn Creative League, where I’ll be talking about everything you need to know about business law in 90 minutes.  (Well, not quite . . . but close!)  In this entertaining and lively session, I’ll provide entrepreneurs with an overview of the most common legal issues they will face as they start and build their businesses.  I’ll touch on:

• How to choose the right form of business
• Working with business partners
• What to look out for in your commercial leases
• How clear contracts make for happy clients/customers
• Intellectual property: what to protect and how to protect it
• Choosing the right attorney/advisory team

RSVP: Contact the Brooklyn Creative League at info@BrooklynCreativeLeague.com or (718) 576-2104.

Date:  Wednesday, July 15, 2009
Time:  9:30 to 11 a.m.
Location: Brooklyn Creative League, 540 President Street (between 3rd and 4th avenues)
(Take N/R Subway to Union Street)
Price:  Free for members; $10 non-members

It’s said that more than 40 percent of all marriages in this country end in divorce.  So there’s a not-insubstantial likelihood that your business could be affected by divorce . . . even if you’re not the one divorcing.  Here’s today’s query:

Q:  My partner’s ex-wife is suing him for a large amount. Can it affect our business if my partner doesn’t pay on the due date? Also, I am thinking of buying the business from my partner. What are things I need to ask and sign?

A:   There is a possibility that your partner’s ex-wife’s lawsuit could cause a problem for your business. Among other ways, if she gets a judgment against your partner, she may be able to collect against your partner’s assets . . . and his ownership of the business is one of his assets. Make sure to review your partnership agreement (if you have one)–many of them provide that if the stock (or ownership interest) of one of the owners becomes subject to a lien or judgment, it triggers a buyout by the corporation (or other owners).

If you choose to buy out your partner at this time, you’ll want to consult with an accountant to get a fair value of the business, determine the price you’ll pay and how much time you’ll have to pay it. You’ll also want to speak to an attorney to make sure that your purchase/sale transaction doesn’t somehow get embroiled in your partner’s litigation. Look for certain safeguards in your purchase and sale documents (often referred to as “indemnification”) where the partner will protect you and the company in the event that the wife widens her litigation net to include you.

Above all, get it in writing and be aboveboard in handling the transaction. The last thing you need is the wife poking around in your transaction (and possibly voiding it) with the allegation that you didn’t offer fair value or that it was a “sham” you and your partner cooked up to stiff her out of her rightful due.

In this challenging economy, I’m seeing a lot of entrepreneurs begin to re-evaluate their business  . . .  and, in particular, their business teams. When business is going well, it’s easy to overlook  the flaws and peccadilloes. Partly because we want to ride the prosperity wave.

But when the wave crashes, and you’re dumped onto the beach with the seaweed, the broken shells and the flannisters (you know, those plastic yokes that hold six-packs together), are you really shoulder-to-shoulder with a business partner you respect?

A Cautionary Tale (names changed to protect the ill-advised):

Dylan started a partnership five years ago after being approached by Pete, someone he “sort of knew” from his industry.  They verbally agreed to be 50/50 partners. Pete formed the company (in his name only), but p-r-o-m-i-s-e-d that Dylan would be put on the ownership papers as soon as they got investors. Dylan did most of the work; Pete put in most of the capital. But each time that Dylan asked about being included in ownership papers, Pete became indignant . . . with a “What–don’t you trust me?” attitude.  Eventually, Dylan got fed up and started exploring his rights.

Problem for Dylan is that without a buy/sell agreement (aka shareholders’ or operating agreement), Dylan’s in a bit of a pickle. Yes, Dylan can ask Pete to buy him out–or Dylan can offer to buy Pete out–but if Pete refuses to cooperate, Dylan has to go to court, which can get expensive and thorny.

An important first step for Dylan would be to speak to an accountant who understands business valuation to help value the company and its intellectual property. That does two things.  First, it provides reasonable numbers to work with when it comes to offering a buyout price. Second, it also helps gauge whether it will be worth the cost of litigating the matter, as there’s no point for Dylan to spend more in legal fees than he would get paid for his interest in the company.

Hindsight is always 20/20.  A buy/sell agreement at the outset would have alleviated a lot of these issues that will now be more expensive to resolve.