You know that saying that friends don’t make good business partners, more than often it’s true. Friends go into business together all the time, sometimes they succeed but more often than ever they fail. Failure doesn’t always come from incompetence related to the actual tasks involved with running a business, rather the ability to act quickly and respond appropriately to poor judgement made by the friend. It’s hard to lay it on your friend when you’re frustrated versus letting that incompetent employee know how you felt about their mistake. Relationships cause conflicts in business and sometimes it gets too difficult if not impossible to find solutions to co-existing in the same environment.
Consider a situation where two best friends start a new web company / business. It’s a new business, and just as any new business this one has challenges. The two friends work day and night on programming the website and encounter countless conflicts with outsourced work and between each other. Nothing gets in the way however, and over time the project is done. They start seeing customers and the business seems to be gaining traction. Come in our investor. The two are offered an investment opportunity. John likes the idea and wants to take the additional funding while Jane is skeptical of the investor’s intentions and declines the offer. The two co-founders have a heated debate and their relationship takes another blow. After much discussion they decide to ignore the investor’s proposal and continue on their own.
Three months has passed and the new company is now gaining much traction, enough so that another person must join the team. Our co-founders decide to draft an agreement that establishes various rules and boundary lines in terms of company share, involvement and decision making. Since the company is growing fast it must hire more workers and establish proper rules, purchase insurance and so on. As time goes by, the company’s official titles must be drawn up and Jane wants to be the CEO. John is unhappy about the situation as he always dreamed of having the title, despite its irrelevant demeanor in the actual business. Jane was the first to establish the idea that grew into the company that it is now and refuses to give up the title. After much argument, John decides that he will leave the company and take his share with him. John goes off and starts his own company ABC with the shares he sold at XYZ, with identical business model, better pricing structure and the same customer list. Jane is furious and wants to sue John for breach of their poorly drafted non-compete agreement. Who’s going to win? Will John have to give up his new business due to breach of contract? Did Jane draft a valid non-compete agreement with proper provisions? How do they solve their dispute?
It is always advisable to have an attorney present when drafting new company contracts, especially ones involving non-compete clauses. In this case, John and Jane will probably have to consult a business dispute attorney to see if anything can be done. Typically the attorneys will handle matters through mediation before further escalating matters to court level if necessary. The two friends ruined their relationship, failed to create validly binding contracts and are now at a loss for attorney’s fees. Much of this could have been avoided simply by having an attorney draft the contract for them.