By Jesse Ramirez
Let’s be real—no one starts a business thinking they’ll end up having to protect it from their own partner. Most of us just want to hustle, grow, and succeed with people we trust. I’ve been there.
Back in 2019, I brought someone into my business who knew a lot about the field. I started my shop from scratch, and at the time, I really needed help. It felt like the right move… until it wasn’t.
Before jumping in, I asked my dad for advice. He’s been in business since 1979 and has successfully run a family company with his partner ever since. His first words? “Protect yourself first.”
So I did what many new entrepreneurs do: I went online and used services like Incfile (similar to LegalZoom) to set up my LLC in California. During the setup, I was asked who the primary owner would be. At the time, I didn’t think too much about it. I set it up as a 50/50 partnership. Big mistake. I had contributed 90% of the capital, so I should have gone 75/25. Lesson learned.
Luckily, Incfile also generated a basic operating agreement, what I now call my business prenup. It covered stuff I hadn’t even thought of: what happens if a partner dies, who’s responsible for debt, and what happens if someone gets into legal trouble. That last one ended up saving my entire business.
Here’s what went down.
While I was on a short vacation, I started getting texts from clients asking if what they’d heard was true. My partner had sent out some wild, inappropriate messages, and apparently, that was just the tip of the iceberg. Within two hours, things had gone viral.
I confronted him when I got back. He shrugged it off like it was no big deal. Meanwhile, I was thinking about my reputation and everything I’d built was about to burn down.
That’s when I remembered the operating agreement.
I sat down and read through every word. Buried in the document was a clause stating that if a partner was involved in criminal activity that couldn’t be resolved, they would forfeit their rights and ownership of the company.
Game-changer.
I immediately wrote a formal notice to my partner citing that clause. Then I took action:
- Drafted a public, professional announcement about the departure.
- Contacted our accountant, the county business license office, and our insurance provider.
- Submitted a change of ownership to the State of California with supporting documentation (including the operating agreement and criminal record).
- Once the state processed the update, I locked down our financial accounts and updated banking access.
Looking back, if I had known better, I would’ve added extra clauses like requiring all company credit cards and account access be surrendered immediately in a situation like this. It would’ve saved me a few gray hairs.
Here’s the truth: an LLC operating agreement is your business's safety net. It’s not just paperwork, it’s protection. And if you’re starting out, especially with a partner, don’t skip this. Even if you’re working with your best friend or your cousin, treat your business like a marriage. You need a plan for if things go sideways.
Takeaways for New Business Owners:
- Use a reputable service like Incfile or LegalZoom to form your business properly.
- Get a solid operating agreement and customize it with your specific what-ifs.
- Don’t rush into a 50/50 split unless it truly makes sense.
- Talk to a business lawyer and ask weird, uncomfortable questions. Protect your future.
Trust me, it’s way easier to have these conversations before the drama starts.
If you have questions or need a starting point, I highly recommend reaching out to a professional or using a service that walks you through everything step by step.
Protect what you’re building. No one else will do it for you.