business partnerships
DESCRIPTION
Business PartnershipsTRANSCRIPT
BUSINESS PARTNERSHIPS: CREATING BETTER
ALLIANCES AND AVOIDING LITIGATION
by
VAUGHN J. BUFFALO, ESQ.
Balestriere, Fariello & Abrams LLP New York City
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Forming a Partnership: Questions to Ask Clients
A. Formation
Percentage Ownership
1. What percentage of ownership will each partner have?
Funding
1. What is the plan for funding?
2. Will you be at all self-funded? If so, how much?
3. Will you seek bank loans for funding? If so, how much?
4. Will you use investors to fund this partnership? If so, how much?
Management
1. How will the partnership be managed? (Ex. Board, manager, committee)
2. What is the monetary amount you each agree will be used to distinguish
ordinary from extraordinary actions?
3. What is the monetary amount you each agree will be used to distinguish major
actions from non-major actions?
4. What monetary amount will you each agree will trigger that a decision must be
made unanimously?
Job Descriptions
1. What will be the responsibilities of Partner 1?
2. What will be the responsibilities of Partner 2?
3. What will be the responsibilities of Partner 3?
Benefits
1. What are the positives of the partnership? What are you excited to get out of this
partnership?
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B. Operation
Handling Disputes
1. In each of your minds, what is a highly likely potential conflict?
2. Can each of you please describe a possible way to resolve this conflict
Exploring Outside Interests
1. Will partners have the opportunity to explore outside interests? 2. Will outside interests need to be disclosed?
Unforeseen Circumstances
1. What is the plan if one partner dies?
2. What happens if one person develops a disability? How would you define
disability?
3. What if one partner wants to resign?
4. What is one partner wants to retire?
5. What if one partner wants to withdrawal?
6. What happens if the partnership goes bankrupt?
7. What happens if one partner gets a divorce?
8. What happens if one partner or multiple partners breach the partnership
agreement?
C. Winding Up and Termination
Buyout
1. How would you want to be bought out?
2. How would you want to buy your partner(s) out?
Fair Market Value
1. In your opinion what is the fairest way to determine market value?
Selling Your Interest
1. Would you allow your partner(s) to sell their interest to someone else?
2. Do you want a flat prohibition a partners ability to sell their interest to someone
else?
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3. Would you agree to employ a right of first refusal?
4. Will there be an exception for transfers to immediate family members or to trusts
for children?
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Business Partnerships Outline
Important Understanding
o The Difficult Benefits
Long-term synergieshard to quantify
o The Easy Costs
Major Terms = Additional Details
o A Very Important List
Expectations = Drill to the Heart
o Job Descriptions
o Test Pilot
o Developing the Framework
Outside Interests
o Major Concerns
o Prohibitions
o Notification and Prior Scheduling
Restriction on Transfers
o Why Have This?
o Ways to Restrict
Decision-Making
o Ordinary/Extraordinary
o Notice of Dispute
Disputes
o Dispute Notice
o Cool Down
o Buyout & Initiation
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Buyout
o Must Have One
o Last Line of Defense
o Types
Pitfalls
o Not in Writing
o Not Understanding
o No Buyouts or Protections
Legal Documents From the Web
o 3 Reasons Not to Use
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Business Partnerships: Creating Better Alliances and Avoiding Litigation
10/29/2013
1Balestriere Fariello
Creating Better Alliances and Avoiding Litigation
VAUGHN J. BUFFALOBALESTRIERE, FARIELLO & ABRAMS LLP
NOVEMBER 6, 2013
Business Partnerships:
New York State Bar Association Law Practice Management Committee on Continuing Legal Education Program
Vaughn J. Buffalo ■ [email protected] ■ www.balestrierfariello.com© Balestriere, Fariello & Abrams LLP
Agenda1. Important Understanding2. Major Terms = Additional Details3. Expectations = Drill to the Heart4. Outside Interests5. Restriction on Transfers6. Decision Making7. Disputes8. Buyout Provisions9. Pitfalls to Avoid10. Why Not Use Legal Documents From the Web?11. Q & A
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Vaughn J. Buffalo ■ [email protected] ■ www.balestrierfariello.com© Balestriere, Fariello & Abrams LLP
Business Partnerships: Creating Better Alliances and Avoiding Litigation
Important Understanding• What are the Benefits? Difficult▫ Immediate/Long-term▫ Synergies on Revenues/Reduction of Costs▫ Milestones▫ Measurement
• What are the costs? Easy▫ Difficult to do▫ Time consuming▫ Loss of Control▫ Just like Marriage
3Business Partnerships: Creating Better Alliances and Avoiding Litigation
Vaughn J. Buffalo ■ [email protected] ■ www.balestrierfariello.com© Balestriere, Fariello & Abrams LLP
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Business Partnerships: Creating Better Alliances and Avoiding Litigation
10/29/2013
2Balestriere Fariello
Major Terms = Additional Details• Parties• Expectations/Division of
Labor• Money• Obligations• Start and End Dates• Buyout/Divorce/Transfer• Confidentiality• Non-interfere/solicit• Non-disparagement• IP/Know-how• Death/Disability
• Exclusivity/No shop• Commitment/Scope• Liabilities• Indemnification• Access to business• Jurisdiction• Arbitration
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Vaughn J. Buffalo ■ [email protected] ■ www.balestrierfariello.com© Balestriere, Fariello & Abrams LLP
Business Partnerships: Creating Better Alliances and Avoiding Litigation
Expectations = Drill to the Heart
Job Descriptions• Best Way
• Gets everything on paper
• Allows for testing in the future
• Most fought over thing—creates resentment
Test Pilot• Teases out issues in your
Vision
• Shows problem areas quickly
• Develops framework; how to work together
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Vaughn J. Buffalo ■ [email protected] ■ www.balestrierfariello.com© Balestriere, Fariello & Abrams LLP
Business Partnerships: Creating Better Alliances and Avoiding Litigation
Outside Interests• Major concerns addressed in Job Description
• Prohibitions▫ Fiduciary Duties (Good Faith, Loyalty)▫ Non-competition
• Notification? Low-bar or high bar
• Prior scheduling of outside interests?
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Vaughn J. Buffalo ■ [email protected] ■ www.balestrierfariello.com© Balestriere, Fariello & Abrams LLP
Business Partnerships: Creating Better Alliances and Avoiding Litigation
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Business Partnerships: Creating Better Alliances and Avoiding Litigation
10/29/2013
3Balestriere Fariello
Restriction on Transfers• Concerns? Why have this?
• Ways to Restrict▫ Flat prohibition▫ Right of First Refusal▫ Right of First Offer▫ Call Right
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Vaughn J. Buffalo ■ [email protected] ■ www.balestrierfariello.com© Balestriere, Fariello & Abrams LLP
Business Partnerships: Creating Better Alliances and Avoiding Litigation
Decision-Making• Ordinary/Extraordinary
• Major Actions▫ Super majority/Unanimous?
• Extraordinary Actions ▫ Easy or Difficult—pros/cons
• If falling through cracks or still problem--Notice of Dispute
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Vaughn J. Buffalo ■ [email protected] ■ www.balestrierfariello.com© Balestriere, Fariello & Abrams LLP
Business Partnerships: Creating Better Alliances and Avoiding Litigation
Disputes• Dispute Notice!
• 30 days “cool down” mediation period
• Thereafter, Buyout—need to make that quick and final with steep slippery slope
• Issue—who initiates dispute; consequences of issuance▫ Person initiating▫ Person not cooperating (others need to be in complete agreement)
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Vaughn J. Buffalo ■ [email protected] ■ www.balestrierfariello.com© Balestriere, Fariello & Abrams LLP
Business Partnerships: Creating Better Alliances and Avoiding Litigation
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Business Partnerships: Creating Better Alliances and Avoiding Litigation
10/29/2013
4Balestriere Fariello
Disputes• Good Trick—Always Ask
• Most Already Know Problem
• Most Already Know Solution
• Use same procedure as Job Description
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Vaughn J. Buffalo ■ [email protected] ■ www.balestrierfariello.com© Balestriere, Fariello & Abrams LLP
Business Partnerships: Creating Better Alliances and Avoiding Litigation
Buyout Provisions• Must always have one
• Last line of defense
• Types▫ Russian Roulette▫ Shotgun (with rachet)▫ Auction (with 3rd party)▫ Mediation (with FMV)
• Who determines FMV
• FMV is Key
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Vaughn J. Buffalo ■ [email protected] ■ www.balestrierfariello.com© Balestriere, Fariello & Abrams LLP
Business Partnerships: Creating Better Alliances and Avoiding Litigation
Pitfalls to Avoid• Not in writing--sharpens the idea
• Not understanding benefits/vision
• Not writing out job descriptions
• Not having a buyout and not making the buyout about $$ only
• Not protecting your confidential information and/or intellectual property
• Not reading the agreement you execute
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Vaughn J. Buffalo ■ [email protected] ■ www.balestrierfariello.com© Balestriere, Fariello & Abrams LLP
Business Partnerships: Creating Better Alliances and Avoiding Litigation
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Business Partnerships: Creating Better Alliances and Avoiding Litigation
10/29/2013
5Balestriere Fariello
Why Not Use Legal Documents From the Web?
Three Reasons1. Your situation is unique—your concerns differ from time to
time and person to person
2. Poor assessment of where you are—need counseling not commodities
3. First steps have significant long-term consequences—for example, agreements get replicated
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Vaughn J. Buffalo ■ [email protected] ■ www.balestrierfariello.com© Balestriere, Fariello & Abrams LLP
Business Partnerships: Creating Better Alliances and Avoiding Litigation
Questions?
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Vaughn J. Buffalo ■ [email protected] ■ www.balestrierfariello.com© Balestriere, Fariello & Abrams LLP
Business Partnerships: Creating Better Alliances and Avoiding Litigation
Creating Better Alliances and Avoiding Litigation
Business Partnerships:
New York State Bar Association Law Practice Management Committee on Continuing Legal Education Program
Vaughn J. Buffalo ■ [email protected] ■ www.balestrierfariello.com© Balestriere, Fariello & Abrams LLP
VAUGHN J. BUFFALOBALESTRIERE, FARIELLO & ABRAMS LLP
NOVEMBER 6, 2013
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