| p>There is a cliché that you should never go | | | | shareholders of the business. At the outset of the |
| into business with your friends because they will soon | | | | venture, everyone is enthusiastic and going to work |
| become former friends. This is particularly true with | | | | hard to reach the desired goals. After a year or even |
| business entity formations. | | | | a few months, the situation can change. One or more |
| Starting a business is a positive move. One tends to | | | | of friends involved suddenly stops showing up for |
| think of the success you will have and how great | | | | work. Perhaps they show up, but just don't do much. |
| things are going to be. While this is natural, smart | | | | Maybe one person ends up fronting all the working |
| business planning also requires you to consider the | | | | capital and grows bitter over the process. In short, the |
| potential for things to go poor. If you form a | | | | friendship/business is degrading. |
| corporation or limited liability company for your | | | | Eventually, things will come to head. Certain |
| business, this can be particularly true. | | | | shareholders will want to boot others out of the |
| Assume you and a couple of friends come up with a | | | | business. At this point, they think about firing the person. |
| great business idea. You jointly agree you should form | | | | While any employee of the corporation or LLC can be |
| a corporation or LLC to make sure you are all | | | | fired, there is a problem. The fired party is still a |
| protected if things go poorly. This is a smart move for | | | | shareholder in the entity. Once fired, the person is no |
| a wide variety of reasons, but you need to take extra | | | | longer required to work, but still has a right to a |
| steps. | | | | percentage of profits that equals their shares in the |
| When forming a business entity, most people are | | | | entity or membership interest in an LLC. The remaining |
| worried about getting sued for something. This is | | | | "working" owners are going to be very unhappy. |
| known as an external risk concern, to wit, a customer | | | | If you decide to go into business with your friends, or |
| or vendor sues your business for doing something | | | | anyone else, you need to deal with ownership issues |
| wrong. There is, however, also an internal business risk | | | | up front before you start earning revenues. The key |
| that most people don't think about. | | | | question is to determine how ownership disputes will |
| An internal risk is essentially problems between the | | | | be handled and put it in writing. |