Hey,

So, you may have heard about TEDx Birmingham this past weekend. I attended. I even blogged about it here. This week, I have been planning, dreaming, and thinking about the bigger picture of why we do what we do. I can’t get Jim Cavale’s (of Iron Tribe Fitness) talk about living with intent out of my head. Every plan I have made, every new service I am planning to offer has run through this idea of vision, mission, and values offered by Jim. If you want to know more about the formula, you can check out Jim’s blog about it or my roundup of TEDx Birmingham which discusses his formula.

In my blog, I talked about different ways your business can be the platform for you to carry out your vision, mission, and values. Just for you, I wanted to talk about how you can legally make sure your vision, mission, and values are carried out in your business. Today, we are going to discuss governing documents and building a legacy for your business.

What does that have to do with my vision, mission, and values?

Everything. Jim said when he was interviewed after the talk on Saturday, “Don’t just get out your pen and paper, put the pen to paper.” Hold yourself accountable and put it in writing. But, it is one thing to have a mission statement or to write out your thoughts for your vision, mission, and values. But, what if you take it a step further. What if you built it into the fabric of your business? Legally. That makes it much more likely to happen, right?

Business plans are easy to change. Easy to ignore. Writing your vision, mission, and values into your governing documents (bylaws or operating agreement) makes it much more difficult to ignore. This is true for you, your partners, and others involved in your business.

You

Even if you are the only owner of your business. Writing out your vision, mission, and values can help you know where you are going. It can help guide you through the process. It can let other people know what you stand for. And, if there is ever any kind of legal issue about it, you would have all that you needed in your governing documents.

Your Partners

How does your relationship with your business partners play into your vision, mission, and values? Do you believe you should resolve disputes a certain way? Do you believe there should be specific limitations on your business relationships? The most important agreement between you and your partners is in the governing documents of your business. Make sure it covers everything you hold to be important.

If there are important items to your relationship with your partners (or investors), you should make sure that is included in your governing documents. Governing documents, though they can be amended, are more difficult than changing a business plan. You can even control how the governing documents can be changed. Do you have to all agree? Do you need a super-majority? Not everything has to be divided by equity stake.

Others Involved in Your Business

After you determine your relationship with your partners, you need to question if there are certain non-negotiables in your business? As an example: Does your business need to have certain operating hours (like Chick-Fil-A who is famous for being closed on Sundays) that are absolutely non-negotiable? The governing documents are the place to place the non-negotiables. It makes them much more difficult to be undermined.

Why does it matter if it is in the Operating Agreement?

Depending on how you have your business set up, the Operating Agreement (or Bylaws in a Corporation) is the most complicated document to change. It is easy to change a business plan, it is easy to overwrite a policy. But, governing documents have more restrictions. The governing documents themselves or the formation documents of the company will control how the governing documents will be adjusted.

Perhaps even more important than the difficulty to change is the fact that the governing documents of a business are binding on the business. They give the business power. They restrict those acting on behalf of the business. They are binding on the owners, the employees, the other agents of the business. A business plan is nice. Policies are nice, but the governing document impact who the business is. The governing documents define the character of a business and what it can and can’t do.

This is important in the growth of your business. If you are growing and giving employees and managers more and more responsibility, the governing documents keep some of the power in your hand. Let’s look at the LLC to better understand this.

Limited Liability Companies can be member-managed or manager-managed. Often, manager-managed LLCs are used in high-growth companies or companies where the owners become less and less involved. The Manager is granted certain powers and is given the authority to do most things in the business. If, however, you have certain issues in your business (whether they be between the Members of the company or non-negotiable business principles) you can place those in the Operating Agreement which will place those restrictions on the Manager you name to run your business. This is more than simply telling the Manager what he can and can’t do, this is contractually restricting the Manager from taking an action. The Manager will have no authority to step outside of those restrictions. If your vision, mission, and values are stated in your governing documents, anyone acting outside of those principles will not, by operation of law, be acting on behalf of your company. They will be acting on their own.

Why does that matter?

Whether you use a Manager or you allow the members to manage the business, the Operating Agreement controls how much authority any given person has in a business. If you place restrictions in your Operating Agreement, whether they be on the partners or on the Managers and those individuals step outside of the bounds of the authority they have been given, you can limit your liability personally and at a company level. Stepping outside of the authority someone has in a company makes the action taken fall outside of the liability of the company. Let’s take a look at Chick-Fil-A for an example.

Disclaimer: I tried to confirm this from a story I read a while back, but I could not locate it – so this is hypothetical, but it may be based in truth.

If Chick-Fil-A has legal documents that keep it from being open on Sunday. Say, it is in the Bylaws of the Company. That means, no owner, manager, employee, or any other agent of Chick-Fil-A has the authority to open the store on Sunday.

What if someone does?

Say, a manager goes rogue and opens a store on a Sunday. He brings in employees and he lets customers come in. He uses product of the company and feeds people. Say someone slips and falls and is injured. Whose fault is it?

Not Chick-Fil-A’s. Not the owners of Chick-Fil-A. Chick-Fil-A never authorized the actions of the Manager. The Manager did not have authority to act on behalf of Chick-Fil-A. That means the Manager who opened the store is responsible for the damages in the law-suit; the cost of defending the lawsuit; the pay of the employees; the cost of the food used. He is responsible for all costs and liabilities he incurred as a result of stepping outside of the authority he was granted. He was acting on his own. He was not acting on behalf of Chick-Fil-A. All because their governing documents restricted his authority to further their vision, mission, and values.

If you are intentional in the beginning, your business can be a platform for your vision, mission, and values. But, you must live with intent. This must be a part of your business planning and your governing documents if you want to make sure it sticks. You can even take it a step further and control the way the document is amended to make sure those who come behind you in business must operate the business according to the vision, mission, and values for which it was created. To do that, it takes some planning. It takes you being intentional in your business.

Good News!

If you weren’t intentional in the beginning. If your governing documents don’t cover your vision, mission, and values. If your legal doesn’t help your business operate with intent, you can change them. Check your governing documents. See what you need to do to amend them, and get started.

Before you do anything with your legal documents, you need to write out your vision, mission, and values. See what makes sense in your legal documents. Do you just need to make changes to your operating agreement to make sure you and your partners are held accountable to the vision, mission, and values you hold for your business? Do you need to make changes to your customer agreements? Do your employee documents reflect the values you have for the way an employee should be treated?

Legal is about more than protecting yourself from liability. Legal can help you be intentional in your business and make sure your business is building a legacy by operating with intent. But, it all starts with you being intentional about the decisions you make. You can use your business to spread your vision, mission, and values, but you need to know what they are first.

I will talk to you next week, unless you talk to me first 😉

Josh