Successful business owners often work long and hard, focusing all of their efforts on building and expanding their businesses. Often, owners have partners who work together amicably toward the common goal of achieving success. As a result, having a partnership or shareholder agreement in place is usually not a priority.
The best opportunity for people to negotiate an agreement to provide for business succession is when they are working together in a cooperative fashion. We have all heard about and seen too many situations where business owners worked together for many years successfully and then an owner becomes disabled, dies, or decides he or she doesn’t wish to work in the business any more. This often leads to disputes, which escalate into protracted litigation.
Having a written shareholder or partnership agreement offers the best opportunity to avoid conflict. Such agreements, often referred to as “buy-sell agreements”, provide a necessary mechanism for dealing with the chaos created by the loss of a business owner.
Typically, the focus of these agreements is to provide for the buy-out of a deceased partner’s business interests, so that the surviving partner(s) is not left with the family of the decedent inheriting those business interests. In return, the family of the deceased partner is provided for financially. Such agreements can also provide an effective mechanism for a buy-out in the event a partner wishes to retire from the business or becomes disabled. Usually, the retiring partner is prohibited from selling his or her business interests to someone the remaining partner(s) disapprove of. In such a situations, the remaining partners may be required to buy-out the retiring partner’s interests, over time. A shareholder or partnership agreement will typically also contain provisions setting forth the parties’ respective responsibilities and obligations. Setting forth this information in writing can be very helpful in avoiding future disputes.
The preparation of a shareholder or partnership agreement also offers the business owner a unique opportunity to focus attention on issues such as disability insurance, life insurance, company benefits, and the operations of the business in general. Such attention to these matters can prove invaluable for the future of the business.
In summary, where a business owner has one or more partners, the owners must take the time to negotiate and prepare a partnership or shareholder agreement so that disputes can be minimized. The involvement of an attorney with experience in preparing these documents is essential.