Your Business May Have the Right Documents for the Wrong Company
It's rarely just the operating agreement
Last week I mentioned a pattern: business problems rarely start as emergencies, they start as gaps nobody got around to closing. A few weeks before that, I wrote specifically about one version of this — operating agreements that no longer reflect who owns what, or how deadlock actually gets resolved. If you haven’t read that one and you co-own a business, it’s worth the five minutes.
But the operating agreement is just one document. The same gap — reality moving faster than paperwork — shows up almost everywhere in an established business, and most owners never connect the dots between the different places it appears.
How the business changes without anyone deciding to change the documents
A few founders bring in a child or another family member, who starts doing real work without anyone formalizing a title, a compensation structure, or an ownership conversation. One owner becomes far more active than the others, but the governance documents still assume equal involvement. The company adds a second location or a new line of business, and nobody revisits the lease, the insurance, or the agreements that were written with only the original operation in mind. A key employee is promised something — a bonus structure, a path to equity, a title that matters to them — in a conversation, not a document. Borrowing increases as the business grows, and with it, personal guarantee exposure nobody is tracking in one place. And often, without any single decision to make it so, real authority concentrates in one person while the paperwork still describes something closer to a partnership of equals.
None of this makes the documents invalid. That’s what makes it easy to miss. The agreement is still a real, enforceable contract. It’s just describing a company that doesn’t quite exist anymore.
Where the gap actually shows up
A few places this tends to surface, beyond the operating agreement itself: contracts — leases, vendor agreements, customer agreements — that can’t be assigned or transferred without a counterparty’s consent, discovered only when a sale or reorganization is already underway. Informal promises to employees that were never documented, which become genuinely difficult conversations the moment someone tries to formalize or unwind them. New locations or business lines operating under agreements, insurance policies, or licenses that were written for a narrower business. Family members with real responsibility and no formal role, compensation agreement, or path forward that anyone has actually discussed. And decision-making that has quietly moved from what the documents say to whatever has become the practical habit.
A few questions worth sitting with
Who actually controls the decisions that matter — hiring, spending above a certain threshold, taking on debt, selling the company — and does that match what your documents say? If two owners disagree on something significant, is there an actual process for resolving it, or does it just depend on who’s more stubborn? Can an owner sell or transfer their interest, and to whom? Is there a workable way to value a departing owner’s stake? What happens if an owner dies, becomes disabled, retires, or is asked to leave? And, underneath all of it: do the documents match what the owners actually believe they agreed to?
If your honest answer to more than one of those is “I’m not entirely sure,” you’re not unusual. Most owners are running the business, not auditing its paperwork, and that’s a reasonable way to spend your time — until it isn’t.
There’s a second, harder test worth applying, too. If the honest answer to any of those questions is “we’d work it out, because we get along” — that’s worth noticing as well. A good relationship between owners is a real asset, but it isn’t a substitute for a document. The entire point of writing something down is to have an answer for the day the owners don’t agree. If your documents only function because everyone happens to be getting along right now, they aren’t actually doing their job — they’re just untested.
Where this is heading
This is one of the things the Business Health Check-Up I’m introducing in a couple of weeks is built to look at: not just whether the operating agreement is current, but whether your documents, your day-to-day practices, and your plans for the future still line up with each other. Most businesses have at least a little daylight between those three. The question worth asking is how much.
Next week: what a buyer, lender, or opposing lawyer would find if they looked at your business tomorrow — and why it’s worth looking first.
Mike Lang is a transactional lawyer who writes weekly for founders and family business owners navigating the deals that define their companies. Questions or topics you want covered? Reply to this email.
Further reading: We Have an Operating Agreement… Somewhere; The Hidden Costs of Going into Business with Family and Friends; Should You Buy the Building Your Business Operates From? (as an example of a decision that changes what your documents need to say).