“When you’re talking about having a partnership or anything where several people are trying to work together, it’s good to put something down on paper so from the start everyone agrees who is responsible for what,” says Formsma.

Depending on the legal entity you select for your business, the shareholder agreement (for a corporation), operating agreement (for an LLC), or partnership agreement serves as a governing document that outlines the rules by which members and managers operate.

Agreements are required in some states. And while not required by the State of Michigan, the state does consider them “highly advisable” according to its Guide to Starting and Operating a Small Business. It describes operating agreements as “the basis on which you establish consistency and understanding about how meetings are conducted, how the company will be managed and decisions made, duties of members, what contributions are required from members, how profits and losses will be calculated, limitations of liability and protection of members, and how members might be added, terminated, or exit.”

In short, operating agreements aim to answer all of the “what ifs.”

What if one partner wants out? What if founders can’t agree on an important business decision? What if a member dies? How are the profits divided among shareholders? (Okay, not a “what if,” but you get the idea.)

Unless you’re a cash-rich, business-savvy, big-picture thinker with lots of time on your hands, chances are at some point you’re going to need to bring in partners to help along your business. Or maybe you’re already established and want to incentivize a key employee with a share of the pie.

One of the most important things an operating agreement does is clearly define the ownership percentages and final decision-making power in the business.

Without clear definitions, you may find yourself in a never-ending cycle of management and financial misunderstandings based on verbal agreements made long ago. Even worse, you may be relegated to following generic state rules that do not consider your unique circumstances, which may lead to unfair profit splits, infighting, and other messes.

“We see a lot of relationships, partnerships, and companies go bad because they haven’t outlined all of the rules and responsibilities in association with the equity,” says Erin Strang, president and CEO of CMURC.

And the most important responsibility that comes up, adds Formsma, “is who gets the final decision.”

“If you have four people and each owns 25 percent, and two think one thing and two think another, it’s hard to move forward and get anywhere,” he says. And, while some might argue everyone with equal share should have equal say, “at the end of the day, somebody has to be given the ability to make a decision so the company can keep moving forward,” says Formsma.

Timing is critical. “You need to talk through and have those conversations on Day 1, not a year in when you get in to an argument,” notes Strang. “And not when money is on the table.”

Hammer these out while everyone’s feeling good about the business (and each other!).