There is generally a common denominator between every business dispute that comes into our offices: a failure to plan for the end at the beginning. From siblings to best friends, no company is immune from disputes amongst the owners.
Why do business disputes occur?
Despite the best intentions, businesses, like marriages, grow. During that growth, both the company and the owners of the company evolve and often, the visions of the owners for the company change. Upon reaching a fork in the road, or a dispute you just cannot move past, business owners often end up in the exact same place that a married couple does: they need a business divorce. Unfortunately, Texas law is not quite as robust when it comes to dissolving the relationship between business owners, and often it is done at the expense of both owners as well as the company.
Deadlocks can leave you in a dangerous place where, absent a predesigned way out, your company ends up being run by a stranger, or worse, sold at what feels like a fire sale by a court appointed receiver. Luckily, you can plan your exit at the beginning of forming your company or corporation and save yourself from a long and expensive business divorce later on.
Why do I need to plan for something that could never happen?
No one enters a marriage thinking they will get divorced, yet 50% of marriages end in divorce. In the same manner, no one forms a business thinking they will end up hating the person sitting across the boardroom from them. But it happens more than you think.
A buy-sell agreement works much like a prenuptial agreement. When you plan how the members of a company, or shareholders of a corporation, will handle the exit of owners at the beginning, there are two benefits. First, you determine exactly how you will separate. You do not leave your destiny and the destiny of your business in the hands of an individual who does not know you or your company. Second, and probably most importantly, you plan how to separate business owners before there ever is a dispute and before history and emotions impair your judgment.
There are several options in drafting a buy-sell agreement that include how to handle a 50/50 deadlock, events that can trigger a buy-sale agreement, how financing a buy-sale agreement will work, and how to value the business to accomplish the buyout. The options truly are almost limitless. But first, you just have to make the decision to discuss the tough subject at the beginning. Trust us, you and your bank account will thank us later.
Stay tuned for part two of Business Isn’t Always Bliss where we discuss specific buy-sale agreement options.