While most people are familiar with the idea of prenuptial agreements for couples getting married, there seems to be less awareness of the equivalent of a prenup for other kinds of relationships.
When entering into a new business relationship such as: forming a new business with one or more partners; investing in a friend or relative’s existing business; joining a group of investors to purchase real estate or starting a new executive position, it is crucial to begin with both a written game plan of what both sides can expect from the relationship as well as a roadmap of each party’s options if unanticipated difficulties arise.
Unlike a prenup before marriage, the prospect of negotiating and signing a binding contract setting forth each side’s rights and responsibilities is not fraught with the emotional weight involved in a personal relationship. In addition, the need for such an agreement is even more pronounced than with a traditional prenup. For a marrying couple, New York’s Domestic Relations Law provides for certain financial protections and rights for spouses in the event of a divorce, even without a prenup. When it comes to a business relationship, without a proper agreement one can potentially be stuck without recourse if the relationship sours.
For example: Two colleagues, Jones and Miller, want to start a new business developing mobile applications, and they form a limited liability company (LLC) together. They may agree on the ownership percentages (e.g., 50%/50% or 60%/40%) and have a general understanding of the duties each will take on within the business, but what happens if:
• Jones and Miller disagree on a major business decision and cannot break the deadlock?
• Miller wants each of them to contribute additional funds to grow the business, but Jones does not want to put in more money?
• Jones wants to sell his interest to a larger company but Miller does not?
• Miller wants to dissolve the LLC and cash out but Jones disagrees?
For these kinds of issues and more, it is crucial for them to negotiate and sign a written LLC operating agreement at the outset of the relationship. The same is true for those who are passive investors in someone else’s business or are taking on an executive-level position in a company or organization.
An experienced attorney can help avoid pitfalls, and costly litigation down the road, by working with the people involved to draft the appropriate agreement that covers the major issues that can potentially arise throughout the course of the business relationship.
About the author
Elliot Rosner, Esq. has a varied practice encompassing complex commercial and civil litigation, matrimonial and family law, and corporate and real estate transactions.
Elliot has represented clients in the fields of real estate, health care, education, food production, nursing homes, as well as not-for-profit entities. In his matrimonial and family law practice, he represents clients before the New York State Supreme Court and Family Court, as well as in Beth Din and other ADR forums.
Elliot Rosner graduated from Columbia Law School where he was a Harlan Fiske Stone Scholar and a Notes Editor of the Columbia Business Law Review. He practices in the States of New York and New Jersey and is a member of the United States District Court for the Eastern and Southern Districts of New York and the District of New Jersey. Mr. Rosner is a member of the New York State Bar Association and lives in New Jersey with his wife and children.
Elliot J. Rosner, Esq.
Snitow Kaminetsky Rosner & Snitow, LLP
805 Third Avenue, 12th Floor, New York, New York 10022 Phone: (212) 317-8500 x312, Fax: (212) 317-1308 www.skrslaw.com, firstname.lastname@example.org