This is the next post in my series on the negotiation and drafting of corporate articles, bylaws, and agreements for companies in Olympia or Tacoma, Washington. My last post provided an overview of topics which this series will address. It also stressed the need to retain an attorney to assist you with the creation of your corporate formation documents such as corporate articles, bylaws, and agreements. Retaining counsel can help you to consider possibilities and foresee problems to ensure that you are protected against those eventualities. In this post I will discuss the problems which can arise without properly drafted corporate formation documents. If you require help, contact my office today to speak with a lawyer.
Properly drafted corporate formation documents clearly define the roles and responsibilities of everyone in your organization. Poorly drafted corporate formation documents don’t define roles and responsibilities well, which causes problems. It is not uncommon for founding members of a corporation to realize that things “aren’t working out” and that one of the business partners needs to be removed from the organization. If that partner is a member or shareholder, however, it may not be possible to just “kick them out.” Even if the corporate formation documents allow you to remove member or shareholder, a simple removal may well lead to litigation. If you can show, however, that the removed individual was not living up to responsibilities clearly defined in the corporate formation documents, then the removal of the individual is more likely to hold up in Court.
A second benefit of properly drafted corporate formation documents is that they can dictate how the business’ assets will be divided in the event of a corporate breakup. Say, for example, that two founders create a new corporation and corporation lands a long-term contract to perform work for a client. Upon a break up, the partners may disagree over which partner has the right to continue to do work on the contract or to do future work for the client. There may also be disagreements over ownership of property purchased by the corporation. Properly drafted corporate articles, bylaws and contracts will have provisions stating how outstanding work is to be divided, how the former partners are to continue to do business and compete with each other, and how assets are to be split when the time comes for business owners to go their separate ways.
A third benefit is that well drafted corporate formation documents can spell out the handling of any liabilities upon the breakup of a company. Say, for example, that one of the founders signed a personal guarantee for the lease on an office building. If the company fails, that owner would then be responsible for the balance of the lease. If the formation documents, however, state that the owners shall reimburse each other for their share of any personal guarantees, then the “on the hook” member may be able to gain indemnification from the others for the lease. This is just one example of many situations in which one can be protected by clearly delineating the handling of corporate liability.
The discussion above only scratches the surface as to the situations which may need to be addressed when creating your corporate bylaws and formational contracts. By discussing your situation with an attorney, you help to ensure that you cover as many of your bases as possible. As an Olympia business law lawyer, I am able to assist with such matters. Contact my office today to schedule an initial consultation. Our firm also serves the Thurston County cities of Lacey, Tumwater, and Yelm, the Pierce County cities of Tacoma, Puyallup, and Lakewood, the Lewis County cities of Centralia, Chehalis, the King County cities of Seattle, Auburn, Bellevue, Burien, and Federal Way, as well as other areas in Washington, including Grays Harbor, Mason, Cowlitz, and Pacific Counties.