Business Divorces

There was recently an article in the Daily Journal about "Business Divorces." The main argument in the article was that when a business partnership turns sour, it is as difficult as a divorce to get out. TLD frequently prepares clients for these situations.

A buy-sell agreement is a way for two partners beginning a business to decide when, how and at what price their "business divorce" will play out. We recently drafted a buy-sell agreement for a group of individuals beginning a cellular accessories distribution business. The three individuals were equal shareholders, all were on the Board of Directors, and all three were employees of the corporation.

One of the shareholders decided he could get a better business opportunity by taking business leads from the company and diverting them to himself for his own personal gain. The other partners found out about what was going on and wanted this partner out of the corporation. Without a buy-sell agreement in place, this partner could be fired as an employee, but the re-purchase of that individual's shares is generally not possible. The law does not provide for a requirement of non-employee shareholders to sell their shares either to the corporation or to the other partners.

With the Buy-Sell Agreement in place, these shareholders were able to compel the repurchase of the shares, give a price for the re-purchased shares, and gave them a significant bargaining power.

The best time to draft and sign a buy-sell agreement is when the business is started. However, any time before there is a dispute amongst the shareholders a buy-sell agreement should be drafted and signed by all shareholders. Please contact TLD if you would like a buy-sell agreement drafted to protect yourself and your business.

Article Submitted By: Attorney Brooke Pollard