Careful consideration goes into the choice of an entity when undertaking a new business venture. However, at the heart of all these arrangements are two essential ingredients that frequently do not get sufficient attention. First, there should be an explicit description of the basic business plan and dynamics that provides an essential business context within which to view technical legal provisions. Second, a good agreement should provide an express process roadmap for how the business will evolve with an exit strategy where two or more people are involved as principals.
No matter what the type of agreement or entity it can be a disservice to the parties to leave them with a bare-bones legal framework. This is particularly true in new economy businesses that tend to be small and turn upon highly personal prerogatives of the individuals involved. In terms of process, the agreement should spell out how the entire series of steps necessary to successfully engage in the venture will be conducted, and in particular in relation to decision-making authority.
I frequently include a “Business Plan” provision in my agreements, including in LLCs and closely held corporations. This has to be done carefully to clearly indicate which elements of the plan are for background information only, and which are intended to have binding effect.
In conclusion, customized provisions of new venture agreements are frequently essential.
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