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Managing the three p’s of business

Learn to effectively manage your patrons, partners, and property

By David P. Grigaltchik

So, you’ve got a plan, a product and a partner, and you’re ready to launch your very own business and take the world markets by storm. In this article, we will explore the different legal issues that prudent business owners should address before going forward with any business venture. Essential to the operation of any successful business is the effective management of the three P’s of business: patrons, partners, and property.

Patrons

The success or failure of your business depends on one thing: your patrons, customers and clients. Having a large pool of clients is always a good thing, but, as with most things in life, quality counts for more than quantity.

Business owners learn early and are reminded frequently that customers may be their best friends or their worst enemies. Billing disputes and frivolous lawsuits regularly cost American businesses millions of dollars.

Since business owners typically lack the ability to pick and choose their patrons, they must learn to protect themselves through other means. Liability or malpractice insurance is something that business owners routinely pay for and hope to never have to use. Liability waivers may allow business owners to resolve adverse litigation quickly or to prevent it altogether, thereby avoiding having to pay larger insurance premiums.

By using waivers, business owners may guarantee certain rights to the patrons of their businesses, accepting liability in specific cases for the patrons’ financial or physical security, but limiting liability in other ways. By signing waivers, business patrons are essentially signing away their rights, and many such rights must be considered when drafting waivers, including rights to privacy.

Since courts are typically hesitant to limit the rights of individuals, waivers containing specific and clear language will have a higher chance of enforcement than waivers containing general and vague language. Waivers are not just for business owners whose businesses involve routine operations that have a high risk of causing financial or physical injury to clients.

As a rule of thumb, if you pay a liability or malpractice insurance premium, you should probably be using waivers. Waivers will not protect business owners who cause harm to their clients wantonly or take unreasonable risks. There is no reason, however, for business owners to live in fear of being held liable for the negligent actions of their employees or for damages caused by unforeseeable environmental factors.

Partners

Your business partner is your wing man. More than just a friend, your business partner is someone you rely on to keep your dreams of operating a successful business alive.

The process of starting a business is exceedingly simple in Florida. In most cases, in order to form a limited liability company, future business owners must simply file the Articles of Organization and pay a small fee. The Articles contain tiny snippets of information concerning your business; typically, the names of the officers and the registered agent, and the address of the company are listed, but little else.

This means that, at the outset, nothing exists delineating the duties, obligations, rights, privileges, or profit allocations among business partners. In other words, at the outset, your relationship with your business partner and, by extension, your business is held together with nothing more than a gentleman’s word.

With a little foresight, this precarious situation may be remedied by way of an operating agreement for your limited liability company. For a limited liability company consisting of two or more business partners, an operating agreement is an absolute must. Not only do operating agreements contain such essential information as the initial capital contributions of each business partner or member, but also provide for the allocation of profits, the timelines of disbursements, and the assignment of other duties.

Operating agreements may contain information specifying the employment of certain professionals, such as lawyers and accountants, and may designate members as specifically responsible for handling tax issues or other specific duties for the benefit of the company.

Consider that most people get married without ever intending to divorce, and yet divorce happens all the time. Similarly, even if the relationship between business partners is stellar, prudent business owners must have the vision and foresight to consider the possibilities of disagreement and dissatisfaction.

Property

Your interest in your business is a property interest. Like most property interests, it is freely alienable, which means that you are free to dispose of it as you like. It may be sold. It may be given away. It may be inherited upon your death. What’s true for you is also true for your business partner.

What happens to your business if your business partner no longer wants to be involved? What happens to your business if your business partner, god forbid, dies an untimely death? The answer is that you may end up having to deal with someone you never wanted to deal with, a business partner you don’t know, like or trust. In many situations, this will effectively bring an end to your business.

Once more, with a little foresight, you may address these issues before they arise by executing a buy-sell agreement with your partners. Buy-sell agreements govern the transfer of a business interest upon a business partner’s unwillingness or inability to continue with the relationship.

Typically, buy-sell agreements grant to the remaining partners the first option to purchase the withdrawing partner’s interest. Such agreements also contain provisions addressing the purchase of a deceased partner’s interest from the estate of the deceased partner. Buy-sell agreements may be tailored in many ways, in some cases making the purchase of the withdrawing partner’s share mandatory.

Regardless of how such agreements are tailored, they allow business owners to protect their interest in the business by giving them the option to continue to operate the business on their own terms following the departure of a business partner.

Gain foresight

In order to be successful in managing the three P’s of business, patrons, partners and property, business owners must have foresight and exercise such foresight by timely executing a series of available legal agreements.

In dealing with patrons, customers or clients, business owners should make use of waivers to limit their liability, thereby protecting themselves from frivolous lawsuits. In dealing with business partners, business owners should make use of operating agreements to ensure that all the rights and duties are clearly delineated at the beginning. In order to manage their property interest in their business, business owners should make use of buy-sell agreements to enable them to continue operating their business on their terms.

Many surprises will greet you in during all phases of business operation, from formation, through expansion, and into dissolution, but with a little foresight, you will be able to nip some of these in the bud.

David P. Grigaltchik is a business law attorney practicing law with his own law firm, David P. Grigaltchik, P.A. His office is located at: 6144 Gazebo Park Place South, Suite 215, Jacksonville, FL 32257. He may be reached at: 904-738-8398 or info@griglaw.com.


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