Separations between principles (partners, shareholders, members, etc.)  have increased since the downturn of the economy, yet there are still many businesses that fail despite no financial stress.  Agreements and expectations should contemplate all foreseeable future scenarios.  Where they do not, there is a high risk of failure.

An impenetrable fortress is always vulnerable from the inside man who lowers the draw bridge for the enemy.  No matter how many legal precautions you take form defending yourself against lawsuits from customers, vendors, or other businesses, one disagreement that is not handled properly can mean a disaster.  If the dispute can not be solved, the only option is often for side to buy the other out, or liquidate the entire company.  This can prove troublesome if the business carries more debts than assets.

Principles of businesses in any legal structure have a mash-up of inter-connecting obligations to one another.  To identify  your weak points, ask yourself the following questions:

• How will profits be shared?
• How will losses be shared?
• How will expenses be split?
• What will happen if you or any other principle (your partner, an officer, a director, member, a shareholder, etc.) wants out of the business?
• If you or any other principle does something wrong, will the business be liable? Will anyone be personally liable?
• Who is authorized to spend money on behalf of the business? Do they have a limit?
• Who can obligate the business in a contract agreement? Do they need someone else’s approval or vote?
• What protections do you have to ensure agreements are followed?
• Who keeps track of the accounting?  Where is the accounting information kept and who has access to it?
• Is there a procedure in place to monitor financial activity by third parties?

• …and many more.

You should know the answers to these questions.  First, there should be a clear answer to these questions in written documentation and agreements.  Second, these should be able to be answered spontaneously by all the principles to ensure that expectations meet reality of obligations.