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Protecting Assets from an Ex-Business Partner

Nobody plans on fighting with their business partners, but disputes are an all-too common part of the picture for many. Fortunately, these bitter and often costly problems can be dealt with before they escalate to the point of litigation.

Create a buy-sell agreement

A buy-sell agreement can help avoid the unpleasant problem of handling a business partner who wants to sell out of their portion. The agreement should prohibit either partner from transferring their interest in the business to anybody else, either by choice or otherwise. This prevents one party from being forced into business with someone they don’t care to do business with.

The agreement can even include a “shoot out,” which allows a partner to set a price at which he will buy the other partner’s shares, in the most difficult cases.

Plan for death or disability

A typical buy-sell agreement will require the company and surviving partner or partners to buy a dead or disabled partner’s share in the business in order to keep control of the business and ensure the affected partner’s family is compensated.

Explore all possibilities

Setting a fair buyout price and terms will help avoid most common partner disputes, but the potential for other issues still exists. For instance, Subchapter S corporations need to take extra precautions to avoid tax problems for the partners in the event of a buyout. The agreement should require cash distribution to pay each partner’s estimated taxes.

A buy-sell agreement is relatively inexpensive insurance against what can be a costly, complex situation. You have two options: you can incur a modest cost now for a properly crafted buy-sell agreement prepared by an experienced attorney who specializes in small business law, or potentially face the deluge of costs associated with a dispute going to litigation.

For more information about protecting business assets, buy-sell agreements, or to schedule a consultation, call the experts at the BCN Law Firm in The Villages today at (352) 775-4739.