How Not to Get Screwed by a Co-founder

Last Updated Feb 10, 2011 6:29 PM EST

The Question: My partner and I want to put together an operating agreement before we start building our business. What should be included in such an agreement?
-- Kathy in Texas

The following answers are provided by the Young Entrepreneur Council, an advocacy group founded by serial entrepreneur Scott Gerber that works to take action against youth unemployment by teaching young people how to build successful companies. The council's members include Generation Y entrepreneurs and experts in a variety of fields.

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"Great job and the foresight in doing this -- many people don't. Operating agreements are not something that should be taken lightly, and a few sentences of information won't be enough to convey all the important aspects that such a complex legal document needs to cover. Your best bet is to hire a lawyer experienced in these matters, and split the costs with your partner." -- Matt Mickiewicz (@sitepointmatt), founder of 99designs
Assume you might disagree on everything
"Consider all of the possibilities... even the ones you might not like. Definitely include the following: a partner buy-out agreement, financial expectations of each member of the company, how dividends are paid out, and what happens in the event of a sale. Most importantly, be clear about how decisions are made. Write the Operating Agreement under the assumption that there will be disagreements!" -- Luke Burgis (@actvprayer), founder of ActivPrayer
Figure out ways to avoid court
"I strongly encourage you to specifically outline how to handle dead-locked disputes right from the start -- it can save you a lot of money. For example, instead of allowing the partners to go to court, you could specify that mediation or arbitration must be used first." -- Adam Toren (@thebizguy), founder of YoungEntrepreneur.com
Sign the pre-nup now
"I highly recommend putting together a Business Buyout Agreement as part of your Operating Agreement. Business Buyout Agreements are similar to marriage pre-nuptial agreements, which states very clear rules about what happens if the business breaks up, a partner leaves, and even when a partner divorces or dies. These agreements can save your business." -- Eric Bahn (@beatthegmat), founder of Beat The GMAT