Charles “Chase” Merritt, convicted of the murder of the McStay family, appears during his hearing in the San Bernardino Supreme Court in San Bernardino on Tuesday, January 21, 2020.
Watchara Phomicinda | MediaNews Group | The Riverside Press-Enterprise via Getty Images
In this era of gig work and sideline hunts, many aspiring entrepreneurs may ignore one basic rule of business: write it down in writing.
“There are many businesses that are only done with a handshake and good faith, and unfortunately this often leads to rather chaotic situations,” Andrea Tarshus, small business attorney, told CNBC’s “American Greed”.
In one of the most extreme examples of a bad business partnership, Charles “Chase” Merritt murdered business partner Joseph McStay along with McStay’s wife and two children in an apparent dispute over nearly $ 43,000 that Merritt owed McStay.
“Someone brought into your business can turn you on about greed,” said Britt Imes, assistant prosecutor for San Bernardino County, California.
A California jury convicted Merritt in 2019 of four first-degree murder. He is on death row in San Quentin State Prison.
It was more than four years before the McStay family disappeared in 2010 for investigators to tie the murders to Merritt, who installed McStay-designed and built water features.
Authorities eventually discovered that after the family disappeared, Merritt withdrew thousands of dollars from the business account. Prosecutors argued that McStay tried to lock Merritt out of the deal.
Get your house in order
While this is an extreme case of a bad partnership, business disputes can wreak enormous harm.
“The partners disagree, or suddenly they have a lawsuit that surprised them and they’re trying to figure out how to remedy the situation,” said Tarshus, whose law firm is based in Buffalo, New York.
The National Federation of Independent Business, the nation’s leading small business advocacy group, urges entrepreneurs to hire a lawyer early – ideally within 90 days of starting the business.
“Before you unlock your door, make sure your legal home is in order,” the organization said in a recent blog post.
A lawyer can help you decide on the right company structure, review all contracts to be signed, help you manage risk and advise you on labor law issues.
If you’re working with a partner, a written agreement can help prevent disputes. For example, Tarshus typically recommends that partnership agreements include caps on the amounts that partners can withdraw from company accounts.
“When one of the partners goes out and makes a big deal or purchase, or agrees to spend a certain amount of money on a project, buy equipment, or sell real estate, or buy real estate, the other partner sits and goes, why would you do that without letting me do it first? “said Tarshus. “Well, if you put a cap in your corporate governance document, it would prevent this type of problem from occurring in the first place.”
Do detective work
Tarshus also suggests giving prospective partners a thorough background check and allowing your partner to check you out, even if you think you know each other well.
“Sometimes the way people behave in the workplace is not the way they behave in person or with friends,” Tarshus said.
The process should include reviewing the previous employer and thoroughly reviewing references to understand how the partners behave in day-to-day business situations.
“Even if the two of you share the same vision for a company and a person has a different ethic and policy to which they stick, a conflict can arise,” she said.
In many cases it may be appropriate to ask your partner to split three years worth of personal tax returns.
The review process should also include a criminal background review. Tarshus said that hiring a professional company to perform this exam can ensure it is thorough. It can also help protect you from liability, not to mention awkwardness.
At least start with a simple Google search. But don’t just enter the person’s name.
“You can also put the word ‘lawsuit’ after your name. ‘Bankruptcy’. You can get ‘criminal record’, ‘mug shot’. These are all key words that get a lot of information.”
It’s unclear how much McStay checked at Merritt, or how that could have affected McStay’s decision to do business with him. However, a background check would have revealed Merritt had a criminal record, including two convictions for burglary.
Trust your instincts
If your partner opposes this type of review, that alone may be a red flag.
“You really have to trust your instincts,” said Tarshus. “And if a person is unwilling to share with you, or be vulnerable, or let you peek into their personal life, then I would be really careful about doing business with them because I was concerned they would would do. ” keep some things secret. “
Above all, resist the instinct to postpone an unpleasant or unpleasant process. Tarshus said all too often business partners think their business is too small or informal to warrant such a comprehensive process.
“You may not be anyone today, but you are trying to be. The point of your business is to be successful,” she said. “For this reason, it is very important that you lay a solid foundation for your business today.”
Follow the lead as investigators trace the mysterious disappearance of a young California family back to Chase Merritt, who claimed business partner Joseph McStay was his “best friend.” Catch a brand new episode of “American Greed” on Monday, February 15th at 10pm ET / PT only on CNBC.