Your business is most likely a major asset and source of income to you and your family. However, it is probably not properly protected from life events of the co-owners.
Most business owners would be shocked to discover what happens to their business when “life happens” to one of the business co-owners. Many businesses have failed and many business owners have lost their business because the failure to have a comprehensive and updated Contingency Plan.
Can you afford to lose one of your major assets and significant source of income?
A Contingency Plan is what you would want to happen if something happens to one of the business’ co-owners. Most business owners would be shocked to discover what would actually happen.
Can you specifically say you would be comfortable explaining what would happen under the following circumstances?
You head into work just like any other day. Upon arriving, you hear the news that one of the co-owners:
- Had an accident/illness and is now in the hospital disabled and can no longer work
- Spouse has filed for divorce
- Is being sued personally
- Is filing for bankruptcy
- Needs to be fired
- Just wants out of the business
- Is ready to retire
- Loses his/her professional license
- Is using his/her equity in the company as collateral for financing a speculative investment
- Doesn’t agree with you on the direction of the company and there is a deadlock
- Wants to give his/her equity in the company to his/her son, the couch-potato
- Has been approached by a major competitor who wants to buy out his/her shares in the company
One of the first thoughts you may have is “What does this mean to me and the business?” The answer to that question will depend greatly on your Contingency Plan. What is a Contingency Plan? It may be your documented “Plan B,” your “Business Owners Pre-Nup,” your “Back-Up Plan,” your “Pull Here in Case of Fire,” in other words, your Buy/Sell Agreement.
If you do not have a buy/sell agreement or if you have one and it doesn’t work, the results could be catastrophic. You could find yourself with a new partner, such as:
- Your former partner’s spouse
- Your former partner’s ex-spouse
- A court appointed conservator
- Your former partner’s children
- A creditor of your former partner
- A bankruptcy court trustee
- A bank
- One of your competitors
- Some third party investor
Most of the people named in the above list won’t care about your company. They only care about maximizing their bottom-line. Usually they will do this by attempting to force the business to dissolve and liquidate its assets or by forcing you into buying out their interest at an inflated price.