Libertyblues Posted December 13, 2015 Posted December 13, 2015 I'm planning on starting a company start a company with a friend who like me wants to grow and become virtuous. Is a contract then still necessary?
Des Posted December 15, 2015 Posted December 15, 2015 I understand that the point of a written contract, is then parties to the contract know what to trust the other person to do, in each of the specified contingencies. As in : If I don't make this payment by this date, I will contact you to explain my circumstances, and accept that interest accrues at this specified rate. As in: I will put up 70% of the initial investment, do none of the sales or production work, and expect 50% of the profit. The trust is about trusting the other person to do as agreed, or to re-negotiate if he wishes to vary, or to compensate me (somehow) if I suffer from his variation from agreed action: if he did not first re-negotiate the contract. It is not that your priority is to prepare to sue each other, but rather that you have a clear understanding of what you are agreeing to, so you as trustworthy people, can each do what the other is trusting you to do, and can then be clear what was previously agreed, before you re-negotiate to a new contract. If someone says "just trust me", and we have no contract, I must trust him to do what? I don't know.
dsayers Posted December 15, 2015 Posted December 15, 2015 My relationship with my "boss" is an unwritten one. I enjoy it very much and not having a contract or even needing one is very comfortable. That said, going into a business can be a bit different. Lots of risk and investment. Even if you choose not to enter into a formal contract, it's something I think you guys do pretend to engage in. That will help you to think of some of the conditionals you would put in, which could help you make sure that you both have a good understanding of what you're getting into.
WorBlux Posted December 16, 2015 Posted December 16, 2015 I'm planning on starting a company start a company with a friend who like me wants to grow and become virtuous. Is a contract then still necessary? If you are going to register the company as an LLC or corporation you do need a formal discritpion of ownership and management operations. Even if you want to do a fifity-fifty partnership there are relevant questions about dissolutions, buyouts, and how to handle disbursements. At the very least you should discuses these contingencies.
shirgall Posted December 16, 2015 Posted December 16, 2015 A contract is only evidence of an agreement, and it is wise to develop a contract when an agreement must be remembered or understood later. The process of developing a contract also lets you consider what should happen if conditions change or if either party needs to back out of the agreement. Buying gum at the corner store? You don't need a contract. Hiring someone to do six months worth of work remodeling your house? You might want a contract. Hiring someone to do five years worth of work starting, growing, and maintaining a profitable enterprise? Please get things down on paper.
ribuck Posted December 16, 2015 Posted December 16, 2015 An alternative to a contract is a Memorandum of Understanding, which sets out in writing the expectations of the parties. But it's not a legally-enforceable document. It's focused on the positive, rather than on the negative like a contract. Regardless of whether you sign a contract, or a memorandum, or nothing, you need a written understanding of what will happen if you and your partner develop an irreconcilable difference of opinion. Typically the arrangement is that one partner will make a bid to buy out the other partner's share. The other partner can choose to accept that bid, or to buy out the bidding partner's share for the same price (assuming the shares are 50-50). Harry Browne discusses this in his book "How I Found Freedom In An Unfree World".
Libertyblues Posted December 16, 2015 Author Posted December 16, 2015 Nice, thank you guys! I found the comments very insightful! Especially that a contract of course is a pareto efficient negotiation^^
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