Every business litigator has seen it: two partners who built a successful business together, now at war because they never put their agreement in writing. The handshake that seemed like a gesture of trust at the start becomes the source of irreconcilable disputes years later when the stakes are high and memories diverge.
At Travis & DeBlase PLLC, a significant portion of our business dispute practice involves conflicts that could have been avoided entirely with a properly drafted agreement. The pattern is remarkably consistent, and the costs — both financial and relational — are almost always higher than the cost of having an attorney draft the agreement in the first place.
The Disputes That Written Agreements Prevent
When business partners operate without a written agreement, virtually every aspect of the relationship is open to dispute. Who makes management decisions? How are profits and losses allocated? What happens when one partner wants out? Can a partner bring in a new partner without the other’s consent? These are not hypothetical questions — they are the exact issues that land on our desk in contested litigation.
New York law provides default rules for partnerships and LLCs that operate without agreements, but those default rules rarely align with what the partners actually intended. Under New York Partnership Law, for example, every partner has equal management authority regardless of capital contribution. In an LLC without an operating agreement, the New York Limited Liability Company Law imposes default governance provisions that may not reflect how the members actually operate the business.
What a Proper Agreement Should Address
A well-drafted partnership or operating agreement addresses capital contributions and ownership percentages, profit and loss allocation, management authority and decision-making processes, compensation and distributions, transfer restrictions and buy-sell provisions, dispute resolution mechanisms, dissolution and wind-down procedures, non-compete and non-solicitation obligations, and the process for admitting new partners or members. Each of these provisions represents a potential flashpoint that becomes exponentially more expensive to resolve in litigation than it would have cost to address in the agreement.
The Litigation Cost Comparison
A comprehensive operating agreement or partnership agreement typically costs a fraction of what even a modest business dispute costs to litigate. Partnership dissolution proceedings in New York Supreme Court routinely generate six-figure legal fees. Contested buyouts involving business valuations, forensic accountants, and expert witnesses can cost even more. The irony is never lost on our clients: the agreement they skipped to save money ends up costing them many times more in litigation fees, lost productivity, and damaged business value.
Our Recommendation
If you are operating a business in New York without a written agreement — or with an agreement that hasn’t been updated in years — the time to address it is now, while the relationship is good and the parties can negotiate in good faith. Our business agreements practice helps business owners build the legal foundations that prevent the disputes we see every day in our litigation practice.
Need a partnership agreement, operating agreement, or shareholder agreement? Contact Travis & DeBlase PLLC at (212) 248-2120 or schedule a consultation.