Why is having a signed document in writing a good legal strategy when friends go into business together?

Buss. law discussion

Read “Legal Strategy 101” regarding “Should Friends be Business Partners?”

Discuss the following questions:

1. Why is having a signed document in writing a good legal strategy when friends go into business together?

2. Do you think it would be easy to miss or disregard having signed documents as a college student? Why or why not?

3. What should be in the document governing the business? Feel free to specify an entity type and get particular or keep it general.


Should Friends Be Business

Should friends ever go into business together? Some of the most successful business ventures in history were founded by friends. Google, for example was founded by friends Larry Page and Sergey Brin when they were students at Stanford. At the same time, however, starting a business with a friend can pose legal risks down the road.

Consider the founding of Facebook as depicted in the movie The Social Network. This movie retells a remarkable story of genius and betrayal: how two close friends, college students Mark Zuckerberg and Edu- ardo Saverin, became informal business partners when Zuckerberg launched “The Facebook” from his dorm room in early 2004, and how their friendship ended after they had a falling out.

In real life, Zuckerberg and Saverin eventually became involved in a costly and protracted legal battle, and although the two former friends were able to settle their dispute out of court, the litigation posed a signifi- cant risk to Facebook’s future.

Accordingly, one of the lessons of the founding of Facebook is that you should always think carefully before you start a business with your best friend. More- over, a good legal strategy may help potential partners to anticipate legal problems before they occur. Here is some sound strategic advice:

First and foremost, before investing any time, money, or other resources into a business partnership, you and your partner should have a signed agreement that clearly specifies your company’s vision, your roles in the business, your compensation amounts and ownership breakdown, your investment amounts, a conflict resolution protocol (like arbitration), and a succession plan, among other things..

Secondly and just as important, you and your partner should never mix your personal finances together when starting a business partnership: instead, you should put into place from day one a set of agreed financial best practices in order to reduce the risk of mismanagement of company funds,

We close with the wise words of John D. Rockefeller: “Friendships based on business are much better than businesses founded on friendships.”

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