Unfortunately, changes are part of life and they are inevitable, but many business partners do not plan for changes. We encourage partners to plan for death, disability, divorce, disagreement, and other possibilities in the evolution of the partnership at the beginning, but what if you did not do that? What if you formed a partnership and now your partner has died, and their spouse or children are at the door, trying to insert themselves into, or even take over the business? How do you respond?
The first avenue of response is to take a look at your partnership agreement, and we use the term “partnership agreement” to mean a broad range of things. That could be a partnership agreement, it could be an LLC agreement, or it could be corporate documents. There are probably some underlying legal documents which outline the relationship, who does what, how they do it, and how they make it work. This is going to be your first line of defense. Look at that document, or documents, in light of the applicable state law and figure out what your rights are. If you did not do advance planning, odds are that those rights and interests may have transferred to the family as part of the estate. Congratulations. You have a new partner. Now what?
Now come the practical answers. You need to find a solution that protects the value of your business.
#1. Do not overreact. Take a deep breath, assess the situation, and understand what is happening.
#2. Think about your options. What would the business look like without you? What do you think the heirs of your former partner want? Do they want to run the business, or do they only want income from it? Would they be happy to take a check?
#3. Open the conversation. Start talking to the heirs about what is going to happen in the future, how they plan to participate, and what they want the partnership to look like in the future. You might find some answers that can get you on a path of reconciliation.
#4. Devise your plan. When you have collected important information, figure out your plan and how you want to participate. Many of the strategies you take are going to be based on the facts at hand. Each situation is different. Your partnership documents and your relationship with the heirs, their wants and needs, are going to drive much of your strategy.
#5. Negotiate. Start discussions and figure out how you can each win.
#6. Do not take your foot off the accelerator. Keep working hard for the business. Ignore the temptation to lighten up and to allow things to go sideways. You want the business to continue to succeed because you are invested in the value.
#7. Find a resolution. Do not let the business falter. Keep working to get to an answer. Keep the communication open and keep looking for that win-win. There is almost always a silver lining in the clouds and almost always a way that all the parties can get some or all of what they want. Pull those pieces together.
Unfortunately, with business partnerships, you can be put into awkward situations. Sometimes you will not end up where you want to be. Sometimes the interests move among family members in unanticipated ways. As always, you need to make the best out of the situation. Think about your options and make a plan that works, one that takes into account everybody’s interest and creates a viable win for most people. Be patient and do not overreact, and protect that value that you have worked for.
What has been your experience with business partnerships? Have you had unexpected events happen in your partnership? How has that impacted things for you? What will you do differently in the future? Join us in the comments below and let us know what your experience has been and what planning you’re putting in place for the future.
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This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. Freeimages.com/photographer Michael & Christa Richert.
About the Author
R. Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment, gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can email R. Shawn McBride or (214) 418-0258.