A founder’s agreement is one of the most important documents that anyone can have when trying to start a business. In short, this is an agreement between the founding partners that is designed to lay out all the rights and responsibilities that each partner has in running the business. This is not the constitution of the company, but it does help to govern the relationship between the people who are running it. It can include a wide range of different elements, including the duties of each partner and the expectations for competence. For instance, a person who is going to put in sweat equity would make this known in the agreement, while the people responsible for fronting the money would make this known. Likewise, there can be special agreements as to how many hours people will work, any special credit terms, and how the business will be dissolved if it has to be.
One of the things that may be found in this agreement is a buyback clause. It is a part of the agreement that dictates what will happen in case one partner wants out of the business. Typically, it will provide a reasonable means through which the other partner can choose to buy back the equity in the business. Because it can be hard for people to just come up with this amount of money right away, these provisions usually give enough time for the remaining partner to round up the cash necessary.
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Avoiding legal disputes is critical for business owners. Legal disputes divert energy that could be spent elsewhere. They are also quite expensive in most cases. Avoidance is the best strategy. With this in mind, the best strategy to avoid legal disputes is to have an intentional plan. Here are four ways to avoid legal disputes.
One is to have clear contracts. Contracts should be uncomplicated to the extent this is possible. This will ensure that there is less confusion about what is going on within the course of business relationships. Another potential strategy is to have a strong dispute resolution system where customers and other stakeholders can lodge their complaints without having to take things to court. Another critical strategy is to carry insurance when relevant. Insurance policies can ensure that the company is able to simply use the policy rather than having to pursue litigation whenever some problem takes place. Another critical part of the strategy is to be intentional in HR practices. If a company has strong HR practices, then it will hire the right people. It will then have fewer discrimination or other claims that may cause hardship, legal issues, lawsuits, and other expensive problems within the organization.
In order to build a strong ethical culture, one of the things that an entrepreneurial organization must do is make ethical decision making a part of its HR processes. The most ethical organizations are those that hire people who are predisposed toward good, ethical decision making. While it is true that people can be influenced to behave in non-ethical ways if the environment around them is not ethical, companies are always off to a good start when they spend time and money up front to get good people in the mix.
In addition to that, the company should conduct an audit to make sure that it does not have incentives for unethical behavior. In some organizations, there are misaligned incentives. People end up getting bonuses or promotions when the do things that are risky. The worst are hyper-aggressive sales cultures in which people know that if they behave in a certain way, they will end up moving up the ladder.
Importantly, the third way a company can put in place an ethical culture is to provide positive incentives for ethical behavior. When people know that they will be rewarded for good, hard, ethical choices, they are much more likely to behave in those ways. Critically, companies should train employees on ethical decision making and make it clear that this is the expectation. When the expectations are set and employees know that they will be rewarded, it makes it much more likely that the overall culture of the organization will tend toward ethical behavior.
Piercing the corporate veil is a critical part of the business legal framework. In the corporate world, whether a person has a C corp or an LLC, that person has established a corporate form that protects him from personal liability. The business itself has liability for any bad acts or problems, but in general, a person does not have personal liability.
With this in mind, to pierce the corporate veil is to be able to get through this corporate shield to hold the owners of the business personally liable. It is very hard to do this, as the law supports the idea that people should not have to be personally liable for acts of the business (Macey & Mitts, 2014). However, the law also wants to ensure that people are not able to use the corporate veil for fraudulent acts to enrich themselves without having their own personal liability. If one wants to pierce the corporate veil, they can usually do so by showing that there has been fraud ongoing in the organization. This will allow them to attach personal liability to whatever has taken place so that a person cannot just get away from the liability that follows when going through with the normal course of business.
