Something Always Goes Sideways.
Always.
I have never seen a group of people doing something together that didn’t.
Not once. Not in thirteen years. It’s not an if question, it’s a when question.
Every partnership, every group of people, relies on two things: the understanding that goals and interests won’t change, and a signed agreement for when they do. Hopefully signed when everyone still likes each other.
Life changes. Priorities change. Interests change.
Three friends started a medical spa. A corporation, divided equally in thirds. They knew each other, trusted each other, worked together, lived in the same city. A lawyer drafted the formation documents: solid bylaws, well-constructed partner rights, built for exactly the kind of company they were building. Majority votes for everything. Clear rules on absent and under performing partners. Anticipated all the standard multi-party situations, and for everything else, there are well-established corporate legal doctrine to fall back on.
The papers were prepared and highlighted for easy review. Ready to sign.
Six years later, a pandemic, one partner got married. Moved out of state. Eventually to Bali. The remaining two were left running a medical spa with an absent president. The partner whose license the whole operation ran under. He’d surface for a moment, then disappear for weeks, months. Paperwork stalled. Decisions stalled. The business was stuck.
They came to me after Bali.
Show me the formation documents, I said. They did. I went through them and I was genuinely surprised. The bylaws were good. The prior lawyer had done a solid job.
Except these documents weren’t signed.
I got on a call with the two remaining partners. I asked them: Do you have signed copies of these documents?
They laughed. The nervous kind.
Ugh. We’re in trouble.
Not only were the partners running the company without the authority to do so, life had changed. The easy way to fix it was to get everyone to agree to the original formation documents, even if the original terms were no longer in the Bali-Partner’s best interest. The hard way was to agree to new terms or buy the Bali-Partner out.
I explain the situation and the solution to the two partners. They assure me that the Bali-Partner doesn’t want to hurt the business nor them. He’ll help us, He wants to help us.
I’ve heard this before. It rarely goes well. Very few people willingly give up their interest and control over a business they helped start.
We got lucky, the Bali-Partner didn’t want to hurt the business. Didn’t want to hurt his friends. So, he signed the original formation documents and even volunteered to resign as president, reduce his interest in the company and agreed to help find a replacement as license-holder for the business.
This business got away with one.
For the record, “easy” partnership resolutions rarely happen, I can count on one-hand (with fingers remaining) the times its worked out so smoothly. Usually, signatures and interest are purchased by the company or remaining partners for a disproportionate amount of money, if at all.
Nothing really went wrong, per se. Technically, the work was done. The bylaws were good. Why not confirm they were signed? A lawyer experienced enough to put together a solid set of formation papers for a multi-owner company knows what can happen if documents don’t get signed. And yet.
It happens all the time, do the job, move on. I’ve done it too – do the job, move on.
Thirteen years in, I’m a better lawyer, I follow-up. Because I’ve seen what happens when nobody does.
Eugene is a transactional & corporate attorney + operator in San Francisco. This is Eugene, Unplugged, the Substack where he writes about it.
Attorney Advertisement. Eugene Kim, Esq., CA Bar No. 276271. Content is for informational purposes only, does not constitute legal advice, and does not create an attorney-client relationship. Ready Legal Group, 77 Van Ness Avenue, Suite 101-1826, San Francisco, CA 94102.
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