Protecting Yourself From Internet Business Partners

By | Internet Lawyer, Website Lawyer, Website Legal Documents | No Comments

internet business partners texas shootoutAs a business and technology lawyer, I represent e-commerce businesses that are owned by several individuals and/or entities, i.e. there are multiple Internet business partners.

However, as a practical matter it rarely makes sense to co-own a startup with anyone else (except a spouse if you have one). Whether it’s a true partnership, corporation, or a limited liability company, having more than one partner* is generally a recipe for disaster.

Why?

The primary problem with multiple Internet business owners

Because individuals are unique, it’s almost impossible to find two who are 100% on the same page, have the same commitment and the same goals for a new ecommerce company. Even the motives tend to be very different.

For example, one person sees the Internet startup as an escape from long hours at a hated job. Another is looking to create the next Google with the expectation of working 100+ hours per week to get there. One plans to bootstrap the venture to success through sweat equity. The other wants angel investors to foot the bill during the early years.

Disaster strikes and the Internet startup falls apart

Even if you and your Internet business partners are on the same page with a common work ethic, compatible skills and share a single vision for where you want to take your ecommerce venture, the odds are Murphy’s Law will kick in and screw up your plans.

What do I mean? Here are some common situations that mean the death of an Internet startup.

  • One partner’s work ethic or priorities change when there is a divorce, death, or illness in the family.
  • Cash flow isn’t sufficient to support two owners during the early stages of the venture so the partners start fighting over income or look for things to do outside the company to get paid (e.g. a new job or freelancing).
  • One partner is addicted to chasing the bigger better deal (BBD), disappears to chase the next something-for-nothing get-rich-quick scheme, but still wants to get paid for doing nothing.

Don’t trade Internet business equity for skills

Although it can seem cheap at the time, in the long run it’s very expensive to part with a startup’s equity to someone who is providing tech, marketing, or other skills.

If cash-strapped, it’s better to do the work yourself until you can afford to pay freelancers for their services as independent contractors (preferred) or hire employees (freelancers are often better for a startup’s early phases than hiring employees).

What to do if you insist on having Internet business partners

To increase your chances of success, there should be one decision-maker. And that reality should be documented in a signed written agreement between you and your partner. Input from others can be valued but ultimately you want to be the one calling the shots if there’s a difference of opinion on major decisions your ecommerce company must make.

In addition, you’ll want a written buy-sell agreement that describes when and how you and your Internet business partners will part ways in the future.

Related Article – 7 Keys To Picking The Right Internet Lawyer For Your Business

For example, if your partner files for bankruptcy, is convicted of a crime, or simply decides it’s time to sell, you want a written roadmap in place that can be followed to ensure equity changes hands with minimal disruption to your ecommerce company. There are numerous ways this can be structured. The important thing is that the plan is agreed to by you and your partner and documented in a signed binding contract while you’re on good terms so that if things change, your Internet business can survive even if you’re no longer speaking to each other.

Related Article: 5 Ways To Resolve Internet Business Disputes Without Going To Court

Do most Internet business partnerships fall apart?

Most companies, online and offline, disappear over the years for many different reasons. For Internet startups, it’s an uphill battle to grow a company when there are co-owners whose goals and circumstances change over time. For an online venture to survive, this often means someone has to leave. By putting the right legal protections in place, you increase the odds of surviving and thriving instead of ending up in court destroying the company because of disputed with your Internet business partners.

* Because it’s common to do so in ecommerce, I refer in this article to multiple equity owners of an Internet business startup as “partners” even though they may actually be corporate shareholders or limited liability members instead of actual partners.

How To Protect Your Business With A Buy-Sell Agreement

By | Internet Lawyer | No Comments

buy-sell agreementWhen there’s more than one owner of your company, it’s prudent to protect your business with a buy-sell agreement. This is true whether you do business via the Internet, offline, or a combination of the two.

What’s a buy-sell agreement?

It’s a legally binding contract that triggers the buyout of a co-owner (corporate shareholder, LLC member, etc.) when one or more key events happen that make it necessary to change ownership to protect the company and the other co-owner(s).

Related Article: Business Contracts – Why You Should Avoid Email Deals

This is especially important for Internet startups and other small businesses where there are only a few business co-owners instead of many investors.

What types of events trigger the buyout of a co-owner under a buy-sell agreement?

Here are a few likely buyout events you will want to discuss with your Internet business attorney…

1. Death

2. Divorce

3. Permanent Disability

4. Personal Bankruptcy

5. Criminal Conviction for a violent crime or one involving dishonesty (e.g. theft)

6. Retirement or resignation from employment

7. Investment in a competing business

In addition to the triggering events, you will want to work with your Internet lawyer to determine the processes for how the buyout will occur.

  • What are the payment terms?
  • Who pays?
  • Will the remaining co-owner(s) buy out the departing co-owner or will the company purchase his equity interest?

Key Person Insurance to Complement Your Agreement

If the death or disability of a co-owner would harm your company, you may want to work with an experienced business attorney to obtain key person insurance that would help your company survive the loss of the co-owner.

Related Article: 7 Keys For Picking The Right Internet Lawyer For Your Business

If your business needs a buy-sell agreement, or have an existing agreement that needs to be reviewed and updated, now is the time to set up a related phone consultation with Business Lawyer Mike Young.

Buy-Sell Agreements: How to Get Rid of Your Partners

By | Internet Lawyer | No Comments

business-partners-fightingAll business relationships end. A few when one of the parties is buried six feet under. Most end for other reasons: an owner’s divorce, bankruptcy, personality conflicts, etc. The list goes on. Yet one thing is clear: most Internet entrepreneurs have done absolutely nothing in advance to prepare for the inevitable.

One of the easiest preventative measures that e-commerce company owners can do is enter into a buy-sell agreement that provides for the buyout of other each other under certain conditions (like the ones listed above). Similar to a pre-nuptial agreement, a buy-sell agreement can be structured so that everyone wins in the future when the relationship terminates. There’s no better time to put such a contract in place than when all shareholders, members, partners, etc. are getting along instead of fighting. A mutual interest in protecting the company exists and no one is looking to punish another at that time.

Unfortunately, most online entrepreneurs wait until it is too late. Instead of resolving their differences and parting ways based upon specific terms in a buy-sell agreement, they try to figure out how to escape what is now a bad deal with maximum gain and sometimes with maximum pain inflicted on the other side.

If you own an e-commerce company with others, talk with them about having your Internet business lawyer draft a solid buy-sell agreement so that you can reduce the risk of destroying your business in the future.

Buy-Sell Agreements Can Protect Ownership of Your Business

By | Internet Lawyer | No Comments

A buy-sell agreement, also known as a buy-and-sell agreement, allows business owners to make arrangements by contract for surviving owners to buy out the interest of a co-owner who dies or decides to leave the company. Whether your business operates as a partnership, a corporation, or a limited liability company, a buy-sell agreement can help you plan for the future.
This type of contract can provide for mandatory or optional purchases of an owner’s interest upon death, divorce, bankruptcy, retirement, and other events. Because you, your co-owners, and your company operate under unique circumstances, a one-size-fits-all approach usually doesn’t cut it when creating a buy-sell agreement.

You should prepare to make the best of all circumstances that can trigger a buyout so that your business continues operating and each owner benefits from the advance planning made in the buy-sell agreement.

And because circumstances often change both on a business and personal level, it is important to have any existing buy-sell agreement reviewed on a regular basis with your lawyer to ensure that it still accurately reflects what you want.