You Can’t Control Me
HAVE A WRITTEN DOCUMENT ESTABLISHING ORGANIZATIONAL AND OPERATIONAL CONTROL
Have you ever seen something or someone lose control? If you haven’t, heres a great video for you to watch. Losing control is often a swift abrupt change to the normal and regular flow of things, like a car sliding off the road in traffic. However, in business losing control usually happens slowly and subtly. While there are fabulous stories of a business owner going completely off the handle and sinking a company, most situations we confront as business lawyers are the result of tiny moments over time which cause a business to get off track. Small missteps without course correction can have drastic consequences.
When launching your new venture there are two areas of control in a business that cannot be overlooked. They are organizational control and operational control. At Briefcase we wanted to provide you with some simple guidelines that will help you keep things in check and under control.
The word “governance” to a startup, small business or entrepreneur often implies a rigid hierarchical structure of a large organization. But the legal principles that apply to large corporate entities are virtually identical to a small business. Ultimately an individual or group of individuals or owners have the ability to control the decisions made by the legal entity.
The main way that organizational control is established is through voting rights. In most businesses whether a vote is, or is not required, should depend on the particular issue. For example, for the purchase of real estate or the admission of a shareholder or member, may require the unanimous consent of all members or shareholders. However, for a more routine decision, the members or shareholders may prefer a majority vote. Failing to set out these subtle voting differences in a written document is a legal misstep that could lead to a loss of control These issues can and should be set out in advance in an Operating Agreement or Shareholders Agreement.
We see business all the time that get this wrong. They either believe that if they appoint a manager or president they need not be concerned with voting rights. Or they treat their ownership rights as a trump card to dive into the minutia of business decisions that should be delegated by the owners. If you haven’t read our previous blog about wearing different hats [link] go back and read it now.
Although it can be a good practice to have shareholders and members that are actively involved in making decisions affecting the business, it is often impractical. Although a business might start off with just one founder, there is a magic moment that most entrepreneurs experience when they identify an individual to delegate day-to-day decisions. This affords the owner the ability to take on a more passive role and focus on growing the business.
Parents of small children know that one of the keys to being a good parent are establishing boundaries. As John Townsend describes in his Boundaries books the key to keeping things under control is knowing “when to say YES, and how to say NO.” Not knowing HOW to say ‘NO’ in a business is the legal misstep that will rob you of operational control. The ‘how’ is best answered by a written document establishing boundaries to the areas of the business that have been delegated to a manager, employees or contractor. This can be an Operating Agreement, Employment Manual or Independent Contractor Agreement.
Briefcase answers the ‘How’ for you. Our business attorneys are here to help you put the right boundaries in place for your business to flourish and help you take control and stay there. If you have a question about how to put the right boundaries in place just Ask Briefcase, were here for you.