Make sure your corporate documents are tailored to your situation and not hand-me-downs.
In hindsight, most clients wish they had contacted our office earlier. What problems and owner disputes could we have avoided or reduced by an early consultation?
If you own a business with a partner, an early consultation can establish the partners’ rights and obligations – while things are still good. No one wants to think about a potential falling out, or even an amicable parting of ways, but planning for the end is part of wise planning. As an individual you purchase insurance, you have a will drafted – shouldn’t you put as much planning into your business?
We too often see clients who have adopted “boilerplate” agreements they found on the internet or through a DIY publication, or outdated and stale agreements, with little understanding how the agreement is applied in his or her real-world situation, or more importantly, what alternative options may have been available.
We have worked with many owner/operators of closely held corporations, including shareholders in family companies, who are hamstrung by ill-fitting agreements. It’s better to understand and fix the agreements before you need to rely on them.
If you and your partners operate a small or mid-size business, we encourage you to think through your rights and obligations:
- What happens if you want to leave the business – are there any restrictions on how you sell your interest and to whom you may sell? Do the restrictions help you or hurt you, and why? What if your partner wants to sell – could you be left with a new partner you don’t want? Could you be forced to purchase, or to sell, at an unreasonable price?
- What if your partner is being unreasonable and you want to limit authority or separate from your partner, what options do you have? What if your partner thinks you are being unreasonable and wants to get rid of you? What rights and protections do you have in your agreement? Are those protections enough?
- Is a minority shareholder subject to potential freeze-out or oppression, and if so, what recourse may the minority partner have?
- What happens after a split – can either partner compete with the other? Could you be left unable to earn a living in your chosen profession?
These are just a few examples of the issues we have faced with our clients, and the types of issues you may face as a business owner.
This article is not intended to be a definitive discussion regarding the complexities in ownership of a closely-held corporation. Instead, we hope it begins a discussion and planning analysis. To continue a discussion of the issues presented in this article, or if you are facing a dispute now, please contact Steve Runyan (firstname.lastname@example.org), David Wright (email@example.com), or Kevin Koons (firstname.lastname@example.org) or any of our attorney’s here. It would be our pleasure