Mary was working away at the retail store she owned with partner, Geri. Geri typically did not come into the store as her role included buying and administering backroom responsibilities. But, there she was announcing her desire to be bought out. It was a total shock to Mary. Certainly during their 10 year relationship there had been issues but they seemed to find ways to work through each problem.
Geri and Mary were, it seemed, friends at the root of their relationship, finding ways to help each other. But this, this demand, was totally out of the blue and Mary had no idea how to proceed. Where would she find the money to buy her out? How would the work get done with only her to oversee everything? What is the value of the business? What if they disagreed? Geri had no idea either. She only knew that the diagnosis she received the day before would be burden enough, not leaving energy to continue working and not leaving money for support of her children.
Regardless the company form, when there are two or more owners, there is likely a need to plan in advance.
It is a case too often: One partner needs to leave, is dead or disabled without notice, no longer wants to work in a partnership for whatever reason. Sometimes the partners disagree on decisions that are critical and they seem not to be able to get along as they once did. Sometimes one would like to be the only person in charge.
All to often, they have not made plans to deal with these issues in advance of the issue arising. It is extremely difficult to plan for every circumstance. It is most challenging to figure out what to do when the circumstance arises, unless there is advance agreement.
In a recent partners operating agreement, we helped the partners consider these issues.
- What are job responsibilities of each partner and what is their compensation, including bonuses, distributions, etc?
- When must both partners be involved in decision making – staffing, borrowing, contracting, vendor selection, bringing in other partners etc?
- What if one of the partners dies, who is entitled to that partner’s share of the business and how is the share paid for?
- What if one of the partners is disabled and how is disability determined? Is the disabled partner paid out and under what circumstances and means? Can they discontinue working but be paid for working?
- What if a partner files for divorce? How is the company protected from being part of the divorce?
- What if a partner will file bankruptcy?
- Who determines when the company can be sold?
- What if one partner wants to buy or sell?
- How is value of the company determined in these cases?
- When and how are decisions about this agreement made?
It is better to consider these and other partnership and operational questions BEFORE it is necessary and potentially antagonistic.
Ask us for assistance.