The Business Divorce
Business relationships usually start off in a glow of euphoria and the future seems rich with possibilities. No matter how great your business relationship is, however, it's inevitable that at some point in time, you will need to manage a transition of ownership. The absence of an agreement can lead to costly litigation with an uncertain outcome.
The possible reasons for a business "divorce" are many:
- Disagreement about the direction of the business
- Desire to live in another climate
- Desire to pursue other interests
- Changed circumstances such as death, disability, divorce, insolvency, loss of professional license, conviction of a crime
- Retirement
- Increase/decrease in the value of the business
If the foundation for a buy-out is put in place when everyone is calm and friendly, an orderly transition is much more probable. In addition, the process of putting together an agreement for how to part company actually helps to build a stronger working relationship, reducing the potential for conflict.
The process helps to clarify roles and expectations about how money will be spent, decisions made, and priorities set. The agreement is really an opportunity to mutually and explicitly agree about how the business will operate. It's also an opportunity for minority shareholders to protect themselves when major decisions are being made.
The benefits of a buy/sell agreement are:
- Preventing unwanted shareholders (e.g., heirs of a deceased shareholder, or creditors)
- Establishing the terms of sales (price or valuation methodology, means of funding)
- Provides for Alternative Dispute Resolution
- Providing for an orderly transition (like a will or trust)
The absence of such a Buy/Sell Agreement can leave you with a nasty dispute, the resolution of which can be lengthy, costly and exhausting. In short, don't wait for that "special moment.”
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