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Business Horror Stories: The Vampire Business Partner

Bad business partners suck. When not draining the life out of you, they are probably running your business into the ground. 

In most horror tales, vampires start out as intriguing and intelligent characters. It is only after their victims have fallen under their spell does the bloodletting begin. The same could be said for bad business partnerships. While the beginning of a partnership may be based in perceived like-mindedness or perhaps even friendship, by the time the “newness” of a business partnership has evaporated, many business owners begin to realize they are living in a nightmare that can prove nearly impossible to free themselves from.

Here at Law 4 Small Business, we hear about these nightmare partnerships daily. Below is a list of some of the most common complaints of business owners involved with a “Vampire” business partner. If you are struggling with a bad partner yourself, no doubt some of these descriptions will sound familiar:

Characteristics of the Vampire Business Partner

  1. You work, they do not.  Your vampire partner is getting paid, same as you, yet the contribution levels are vastly different.  Basically, you are working, and they are sucking the business dry.
  2. They started a business with you… and then, they started another business on their own- or with someone else… that is very similar to yours. Now you find yourself in competition with your business partner. 
  3. They have mismanaged their personal affairs in a way that is detrimental to the business.  Perhaps your partner has failed to pay their personal taxes?  Maybe they have charged up vast amounts of debt on their credit cards?  Maybe they are spending too much time and money at the casino?  Whatever the reason, they are un-lendable and undependable.  Their credit score is low, and they cannot even qualify for a vendor agreement, thus leaving you and your personal assets on the hook for everything. 
  4. They continue to make one bad decision after another. For example, they take on customers without the proper due diligence only to be stiffed for thousands of dollars of work. Perhaps they consistently make bad decisions regarding employees; constantly making poor hiring choices or protecting bad employees from write ups or terminations. 
  5. They lack professionalism. For example, the business has a dress code but they cannot be bothered to iron their shirt, get a haircut or shave. They act inappropriate in front of employees or clients. They display habits at work that, were they not a partner in the business, would get them fired on the spot.
  6. They struggle with mental illness, alcohol addiction or substance abuse.
  7. They don’t fight fair. The cannot handle not having their way so they take what should be a professional difference of opinion and make it personal.

Vampires, while easy to become associated with are tricky to free yourself from.  So when it comes to vampires in business, the best protection is not a hunk of garlic and a vile of holy water.  It is a solid operating agreement (for a LLC) or shareholder / buy-sell agreement (for a Corporation).

Operating agreements are the blueprint for your business.  They spell out exactly who owns your business and how it will run.  Anyone can download a generic operating agreement for free. However, when it comes to dealing with a vampire partner- you will find these lack luster documents will leave you and your business defenseless.  The key elements to defending yourself and your business from blood suckers are as follows:

Plan to Disagree.  All relationships experience times of disagreement. That is just part of life. So, it stands to reason that there should be an agreed upon list of rules for engagement when issues need to be sorted out. For example, How, exactly, do you and your partners plan to make decisions concerning your business? If you and your partners are not in agreement, how will you move forward? Vote? What is the plan if the vote results in a tie? An effective disagreement clause will address any discourse that has not yet manifested.

Duties and Responsibilities Clause. So, you say your partner is lazy and does not work as hard as you. Well, how can you demonstrate that if there is no documentation that outlines what it is they should be doing in the first place? Taking the time to give serious thought as to who does what and when is vitally important. It ensures that all the work is getting down and no one is getting stuck with unfair amounts of it. It also sets the stage for individual accountability.

Dissociation. Can a partner leave voluntarily, and/or can a partner be forced out under certain conditions? The answer depends on a lot of factors, but what you want to make sure of, is your operating agreement reflects your wishes and appropriate checks-and-balances as appropriate (meaning: you don’t want to be the one forced out just before the company sells, without being adequately compensated).

Dissolution Clause. All good things, as well as bad things, need to come to an end. A good operating agreement will go into detail as to how your business will, eventually end and under what circumstances.

Professional Behavior Clause. There are certain “bad” behaviors that simply should not be tolerated within a partnership. A brief clause that holds partners accountable for their personal behavior is a way to ensure that the partnership remains professional. These stated standards may include partners maintaining strong personal financial health, personal sobriety and otherwise refraining from behavior that is potentially embarrassing/detrimental to the business.

While we have given the subject of bad partnerships a Halloween spin, we understand it is no holiday to be involved with someone who is, essentially holding your life and livelihood hostage. We also know based on the thousands of businesses that we have worked with that more often than not, most small businesses do not have a quality operating agreement in place. If you find yourself in this situation, know the following: It is never too late to change, update or amend an operating agreement. In reality, it makes sense to consider an operating agreement a living document. If your business is lucky enough to have longevity, it will need to be changing constantly. Your operating document should change along with it.

Check out the operating agreement we use for our clients. We call it the Couture Operating Agreement, which helps you create a high-quality, highly customized Operating Agreement for your business. It’s just $29.95, although it’s free to anyone who forms a LLC or Anonymous LLC with us.

Finally, assuming you already have a quality operating agreement in place and your vampire partner is unwilling to amend their behavior or remove themselves peacefully per the terms of agreement, your next step should be to talk to an attorney. Visit our business attorney consultation page and set up a time to talk with one of our licensed business attorneys. We will listen to the details of your specific situation and will help you come up with a game plan on how to move forward.

Law 4 Small Business, P.C. (L4SB). A little law now can save a lot later. A Slingshot company.

 

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