If these friends had come to me before starting the business, I would have advised them to take several steps to ensure clarity and fairness in their business arrangement. These steps would include:
Formalizing the Partnership: Instead of relying on a generic online legal form, I would have recommended that they create a formal partnership agreement or operating agreement. This document would outline the roles, responsibilities, and ownership shares of each partner, as well as procedures for decision-making and profit distribution. Creating this agreement upfront would have set clear expectations and prevented misunderstandings later on.
Determining Ownership Shares: To account for the non-cash contributions of time and labor, the friends should have discussed and agreed upon a fair method for valuing these contributions. This could have been done through assigning a monetary value to the time spent working on the business or using a percentage-based system that reflects the level of commitment and effort each partner brings. By considering these non-cash contributions, the ownership shares and distribution of profits could have been more accurately determined.
Choosing the Right Business Structure: While forming an LLC may have seemed like a convenient option at the time, considering the circumstances and goals of the friends, a partnership structure might have been more suitable. A partnership would have allowed for more flexibility in terms of decision-making and profit distribution, as well as accommodating the varying levels of involvement and commitment from each friend. Additionally, a partnership agreement could have provided a framework for addressing issues such as buyouts and changes in ownership.
Seeking Legal and Financial Guidance: It would have been wise for the friends to consult with a lawyer or business advisor before starting the venture. These professionals could have provided guidance on legal requirements, helped draft appropriate agreements, and facilitated discussions on ownership shares and profit distribution. Seeking professional advice upfront would have helped prevent conflicts and ensured that the friends were making informed decisions.
From a biblical worldview perspective, it is essential to prioritize fairness, transparency, and stewardship in all business dealings. Proverbs 16:11 reminds us that “Honest scales and balances are from the LORD; all the weights in the bag are of his making.” In this scenario, it is evident that there was a lack of fairness and transparency in the way the business was managed. The friends should have approached their business endeavor with integrity and a commitment to treating one another justly.
In conclusion, had these friends sought proper planning and guidance before starting their business, many of the conflicts and misunderstandings they are facing could have been avoided. By formalizing their partnership through a well-drafted agreement, considering non-cash contributions in determining ownership shares, choosing an appropriate business structure, and seeking professional advice, they would have established a solid foundation for their venture. Ultimately, aligning their actions with biblical principles of fairness and stewardship would have guided them towards a more successful and harmonious business endeavor.
References:
Smith, D. B., & Roberson, L. (2015). Formation and governance of family business partnerships: Agency, stewardship, and capabilities perspectives. Entrepreneurship Theory and Practice, 39(6), 1363-1388.
Mallin, C. A., & Tricker, R. I. (2019). Corporate Governance: Principles, Policies, and Practices. Oxford University Press.
Johnson, D., & Johnson, R. (2015). Business as a calling: Work and the examined life. InterVarsity Press.
