Contract Mistake: Luck as a Strategy

My client "Kathy" thought she lucked out when she got an offer of a million dollars for her business. She had been in business for only a couple of years and this represented a huge profit.

Then, I asked to see a copy of her operating agreement.

It turned out, when she started her buisness, she found an online operating agreement form, and, without consulting an attorney, added her best friend as a "founding partner" despite her friend being a salaried employee.

Fast forward to the million-dollar offer, and suddenly her friend claimed 50% of the proceeds.

Ouch.

Kathy only wanted to give her friend an important-sounding title in her company, and had not realized the real-life consequences. No good deed goes unpunished, right?

Lucky for Kathy, their friendship prevailed, and her friend ended up releasing her claim on the 50%. But not all stories end this well. What if they had no longer been friends at the time of the offer? Kathy would not have been so lucky.

Luck isn't always on our side, and clever lawyering can't always save the day. The best defense? Avoid bad deals in the first place.