“Chi ha compagno ha padrone—’He who has a partner has a master.’” – Messr. Morrel – The Count of Monte Cristo
Few ideas are as bad as sleeping with your partner’s spouse. The only one that comes to mind on this October afternoon is becoming business partners with your partner’s spouse.
Let’s break this out – you are a person who knows something about something. You find another person who knows something about the same thing, and person becomes your business partner. The two of you then open a business.
Why did you open up your own business? To make money. To work together. To build the American dream. And if your business partner dies, then the deceased’s spouse become your spouse.
I mean business partner.
Now, I don’t know what your spouse does for a living, but my wife is an artist. She knows precisely nothing about securities or tax law.
To put her in charge of my firm would be an unmitigated disaster.
Why? She’s an artist.
How can you prevent this disaster? Well, let me tell you.
One of the most rewarding things we do at Brinen & Associates is work with business owners. We help clients build their businesses, protect them, and make sure owners’ goals are addressed.
The first step in protecting the client is having good documents. Good documents contain equally good buy-sell provisions. A properly drafted and implemented agreement with buy-sell provisions can act as a key tool for the professional and client.
Where might these provisions be? Depending on the type of business entity, the document would either be in the partnership agreement, the operating agreement, or in a free standing document. In a Limited Liability Company, the buy-sell provisions are in the operating agreement. If you don’t have a Limited Liability Company, and you don’t have an operating agreement, the buy-sell provisions would be in a stand-alone agreement. If you happen to have a partnership agreement, then the provision may or may not be in that document or may be in a free-standing agreement.
What are buy-sell provisions? Buy-sell provisions are written plans agreed to by one or more of the owners of a company to make sure that the company transfers at a fair price when a critical event occurs.
A critical event could be:
- Retirement
- Disability
- Death
- Divorce
- Bankruptcy
I work with business owners to formulate sensible buy-sell provisions in their businesses and ensure they are properly structured and funded. To be properly structured, a good plan and proper provisions need to address the following questions:
- Does the agreement include a valuation method for the business that makes sense?
- Is the agreement fair to both potential buyer and seller?
- Does the buy-sell agreement integrate with business operations and governance in a consistent way?
- Does the buy-sell agreement integrate with the personal estate planning strategies of the owners in a consistent way?
For most closely-held business owners, the business is the most valuable asset they own. It is prudent for them to make plans so that their businesses and families can continue to thrive—even after the unexpected happens.
Do you know a business owner who already has a buy-sell plan? If so, I can help review it to make sure it can work at the critical time.