Documentation - A Wise Investment
The Core Value of Documentation
Engaging legal counsel to assist you in creating or ending a
business relationship or completing the purchase or sale of a business
or business assets should be viewed as an investment -- an investment
not only to limit your individual liability, but also to reduce the risk
of the unknown and the unanticipated. The fallout experienced by many
from the recent economic downturn highlights the value of an investment
in proper documentation of business relationships.
There is no shortage of rationalizations for avoiding the
relatively small up-front investment required to minimize the likelihood
that a relationship will end in expensive litigation. Before succumbing
to such rationalization, consider the following statement uttered by one
of our battle-hardened clients in response to a suggestion that a
detailed Operating Agreement for a new LLC shouldn’t be needed because
of the pre-existing friendship between the parties:
"60% of marriages end in failure... and those folks are
in love going in!"
Whether in the context of employment, joint venture, purchase
and sale, financing or other relationships, proper documentation will
serve to protect your interests and assets; and in the event of a
dispute, will increase the likelihood of a quick resolution without the
burden of litigation.
While appropriate documentation itself provides core value in
terms of risk management, the value-adding opportunity in involving
experienced legal counsel in your transactions is most often realized in
the areas of structuring and due diligence.
Structure For Value
Business relationships take many different forms, and often
involve a myriad of substantive issues that elude the participants'
initial view of the relationship. These issues may include
securities laws, tax laws, regulatory matters, land use laws,
landlord-tenant laws, debtor-creditor laws, marital property laws,
liability considerations, etc.... In smaller markets such as the one we
serve, political and other local considerations can also be important,
not only in structuring a deal, but in the viability of the underlying
business plan.
Experienced counsel will not simply
document the transaction you bring to them, but will analyze the
underlying components (and legal ramifications) of the transaction, and
in many instances, assist in the generation of a comprehensive business
plan. In our experience, close to one-third of the proposed
"transactions" presented to us by clients end up assuming a different
structure than the clients envisioned when first contacting us. A
purchase agreement may become an option agreement... or a subdivision
trust agreement. An employment agreement may become an independent
contractor agreement. A joint venture may become a management agreement
with a profits interest. We look to the core components of the
proposed venture, the client's view of the relationship being
considered, and a myriad of other factors in fashioning a structure that
best suits the client's needs and sensitivities without losing focus on
the need to balance costs and benefits. When
structuring any transaction, one size does not fit all… but no size
warrants costs that fail to justify the attendant benefits.
The Value of Due Diligence
After an appropriate structure is identified, meaningful due
diligence must often be undertaken. Trust has its limits.