I am continuously amazed by the number of people who get into serious business arrangements with others with nothing more than a handshake agreement.  I have seen the closest friends and relatives get into business together without proper documentation with disastrous results.  

For instance, years ago, I knew of two brothers who contributed unequal capital to start up a retail business.  One of the brothers was unhappy that the brother managing the business chose to continuously put the profits back into the business rather than dividing them up amongst the owners.  There was not a single written word spelling out the terms of their partnership.  The unhappy brother – the brother who contributed less capital than the other brother – hired a lawyer and filed a lawsuit.  After each of the brothers spent tens of thousands of dollars in legal fees, the brother who contributed more capital bought out the other brother as if he was an equal partner – paying hundreds of thousands of dollars in the process.  Needless to say, the brothers were not on great terms for several years after that.

Everyone seems to know stories like this, yet many people are still undeterred and still enter into “handshake deals.”  People rationalize these deals to themselves by assuming that the reason why other handshake deals have fallen apart is because one or both of the parties were evil or untrustworthy.  This is an unwarranted assumption.  The fact of the matter is that even two well-intentioned individuals can have completely different ideas of how to run a business.  Without a detailed written agreement, who is to say what they should do when faced with a difficult – or even mundane – decision?

Before getting into any kind of business deal with anyone, even (or especially) a family member, it is a great idea to memorialize the terms of the agreement in a signed writing drafted by an attorney.  You may save your partnership – and a friendship – in the process.  

— Kassem Dakhlallah is a senior partner with At Law Group, PLLC.  His practice focuses on complex litigation, including class actions, representative actions, commercial litigation, civil forfeiture and personal injury. He can be reached at (313) 406-7606 and kd@atlawgroup.com.