Mark D. Holmes, Esq.: The good side of a Buy Sell agreement is that this allows me to refer out to you – CPAs, Payroll Services, Retirement Planners, Insurances brokers (medical and others) any other related services they may need. Teast expensive insurance you can buy is a good contract. They last as long as your business lasts.
Q: Is it a good idea, when time has passed, to revisit buy sell?
Mark D. Holmes, Esq.: No, not necessarily. If shareholder interests stay the same, meaning that stock sales are the same, then no. Remember that it is essential for all spouses need to sign buy/sell as well.
Jean Tietgen: So no 50/50 partnerships ever?
Mark D. Holmes, Esq.: listen, someone has to make the final decision, someone needs to break the deadlock, to be the tie breaker. I have clients how come to me to break deadlocks, that is still an option.
Beinlich: So you have to negotiate this with your partner, as in “this is how we settle a deadlock”?
Mark D. Holmes, Esq.: Or you can submit a Certification of Petion to Dissolve with the Secretary of State. I’ve seen people bring in a third, 10% partner and that person becomes a power broker in the equation. Sometimes that leads to chaos and a dissolution is the only answer.
Man 1: Thank you ladies and gentlemen, it’s such an honor to be here to speak to you this morning. I hope everybody got this little page I handed out. If you could go down to point 7. It talks about invoices, contracts and agreements. Highlighted in bold type includes closed corporation buy-sell agreements. I just wanted to talk to you a little bit about those today and why those matter.
How many people are in business with somebody who’s not their wife or husband? If you are in business with somebody who’s not your wife or husband, you probably want to consider one of these. What do buy-sell agreements deal with? Any guesses?
Man 2: Buying and selling the business.
Man 1: Buying and selling the business. And what are the circumstances under which people might buy or sell their businesses?
[answers from the crowd]
Man 1: Dying! Divorce! Illness! Bankruptcy! You wake up some morning and you can’t stand the son-of-a-bitch that’s across from you. Right? Those are reasons for divorce. Here’s the thing. You have to look at businesses like marriages. There are all kinds of reasons that marriages end. Now, what happens when marriages end and nobody plans for it? It gets real messy, doesn’t it. And what happens? It’s a financial disaster. Essentially, like a marriage, a business, if it ends in a nasty way with death or bankruptcy or incapacity, illness, or you just can’t stand that person anymore, it has disastrous consequences. The reason why it has disastrous consequences is usually because they don’t have a buy-sell agreement in place.
If you’re interested at all in having people who are either close to you, working a business with a partner survive disasters like this, or if you yourself are in a business with someone else who is not your husband or wife and you want the business to survive any of these disasters, you might want to consider a buy-sell agreement. Now what do buy-sell agreements do? They basically set out what are we going to do if something bad happens, or if something happens that we haven’t really thought about. I have to be candid. Most entrepreneurs when they start companies, they think they’re immortal. They think nothing bad is going to happen. And I’ll give you the classic case. Two partners come in.
They call themselves partners because that’s the only way they can think. They think they’re equal partners, 50/50 partners. That’s probably the most disastrous combination in business. Why? Because when somebody is a 50/50 partner they can stop the business anytime. They just have to say, “I object.” In corporate terms we call it a deadlock. When the corporation is deadlocked, it usually has to dissolve and liquidate. That’s called a disaster. Because if you have a growing concern, and you suddenly have to take your going business and sell it off and pay all the creditors that is a disaster.
What’s the biggest disaster? Usually, it stops your income. Most people don’t think about that. They go, “Really? That’s going to affect my income?” Yes it is. You don’t get any more money. You basically have to pay all the creditors and you’re done. So I usually beg on my knees to have people not do 50/50 partnerships, interests or corporate holdings. Because it’s usually a disaster. Everybody says, “No, I’m strong as an ox, nothing bad is going to happen to me,” and in many cases it doesn’t. But here’s the thing that most entrepreneurs do not foresee: five years later, they wake up someday and they look at their partner and go, “I can’t stand that person anymore. I don’t want to be in the same room with that person. I want out.”
Mark D. Holmes, Esq.