For decades they’ve made a good living, smooth sailing at times, struggling at other times, making payroll for staff but not themselves sometimes. Their child, now forty-something and a shareholder in the company, decided to declare bankruptcy but didn’t bother to disclose that to mom and dad until after the fact. Actually, he was rummaging around the books when they asked what he was looking for, to which he responded, “The corporate papers. I have to show the court and the trustee.” They didn’t fully understand what that meant.
Sitting across my desk, their eyes as big as saucers now that I had explained that the bankruptcy trustee was now their new partner in the business and he might demand them to liquidate assets and pay him off, the need for planning was apparent. You see, companies need to have what we call “buy-sell agreements”. These agreements are like wills for a business. It tells the owners what to do when one of their shareholders are partners declare bankruptcy, die, divorce or don’t want to work anymore. The buy-sell says if one of the owners does one of those things, and some others, that the other owner(s) have the first right of refusal to buy them out and the price is set as a number or an equation that they all agreed on already.
So, if this couple would have planned properly, when their son declared bankruptcy, they would have exercised their option, their first right to buy his interest out, via their agreed upon price or procedure to determine the price. If they would have done that, they wouldn’t be going to court with us defending their interests. They wouldn’t be losing a lot of sleep wondering if they’ve seen the end of the business.
Got company? Get buy-sell.
Photo Credit, Kevin Dooley
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