Put It In Writing: Ownership Battles In Startup Businesses

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Put It In Writing: Ownership Battles In Startup Businesses


By DeAnn Flores Chase November 30, 2016    Category: Business Law     Tags: oral contract startup written contract

Put It In Writing: Ownership Battles In Startup Businesses

In the world of startup businesses, especially those related to social media and technology, a common story unfortunately repeats itself. Individual buddies formulate a viable business idea and away they go with it, fast and furious into the business world with nothing memorialized in writing. Soon, the revenue is flowing and suddenly relationships sour, disagreements occur, and the fight begins over ownership of the enterprise.

Billion dollar companies like Facebook, Uber, and Snapchat, all feature a similar set of events within the history of their existence. Technology companies grow rapidly in size and quickly gain financing, resulting in exorbitant amounts of money and people exhibiting questionable behavior. This is where the trouble begins, especially for those who fail to put the terms of their creative enterprise in writing.

The founders of businesses often fail to execute a written agreement at startup regarding important issues like creation, capital contribution and ownership. Disputes arise regarding who did what and therefore how much money, credit and respect is merited by each participant. One person may think that he or she isn’t getting a fair amount of the credit, and consequently, a fair share of equity in the business.

A written agreement containing clear terms and conditions helps the parties meet and satisfy each other’s expectations. A written agreement maintains trust much better than a handshake or verbal agreement, especially for the formation of an entity based around an innovative business concept. A written agreement will even contribute to the longevity of a friendship much more than an oral agreement.

The formation of a business needs to have all of its relevant terms and conditions in writing, clearly delineated so neither party may question any acknowledgement, obligation or duty contained in the agreement. The recollections of the parties and a stream of texts and emails simply do not equal the reliability of a written agreement.

An attorney experienced in contract law, especially contracts related to business formations and transactions, is essential to helping you avoid the pitfalls of oral contracts in all situations. DeAnn Flores Chase and her team of experienced attorneys can advise you on all your business needs. Contact Chase Law Group, P.C. at (310) 545-7700 or visit www.chaselawmb.com to schedule a consultation.