I've written before about the peril of relying on a handshake for a business deal. Sadly, this summer I have been dealing, on behalf of clients, with the aftermath of handshake deals gone sour.
In one situation, several individuals invested money into a company, but failed to ever complete an operating agreement to memorialize their intent with respect to management of the company, sharing of profits and losses, and other matters. Fast forward one year, when personality conflicts and different management styles have created a suffocating amount of tension among the investors. My client's version of the events that transpired to lead up to a point where the parties no longer wish to be involved in the same business is (of course) radically different from another investor's. A lot of murky areas cover ground that would have been clear if they had spent a little time and money to draft an operating agreement at the outset. For instance, how do we handle another individual, who one investor purportedly allowed to buy membership interest in the company, without obtaining the others' consent, as required by the Colorado Limited Liability Company Act? This issue is one of many that has been the subject of numerous convoluted emails and long conversations between the other investor's attorney and I as we each try to diligently represent our clients and draft the appropriate language in an agreement.
I'm crossing my fingers/holding my breath that we will proceed smoothly to a contemplated buyout in a few days . . . wish us luck!