I was recently presented with facts of a case where a business partner was diagnosed with a terminal illness. He knew he was dying, and what’s more, he refused to put together an estate plan.
What happens to a business in a case like this? Obviously, it puts on a lot of stress and strain on everyone. We don’t know where things are going, and we don’t know where the partnership interests (partnership meaning ownership of the company whether set-up as an LLC, corporation or partnership) are going to end up. We don’t know who is going to be the next owner of the business.
This can create a lot of problems.
So what do you do? The best thing that could’ve been done was to avoid this situation. If the partnership had done some advanced planning in their partnership documents, they could’ve dealt with the possibility of a death of a partner, and who would become a potential owner.
These are standard provisions that are built in the buy/sell arrangements to allow us to anticipate the possibility of death, disability, divorce, disagreement, and other common situations, and put plans in place. What likely should be happening is insurance or a timed buyout should be triggered that would allow that partner’s estate to be paid and the partnership to continue with the original partners (minus the one bought out) without a change. However, because that planning wasn’t done, there’s a great deal of uncertainty.
Dealing with that uncertainty is a little more complex because there’s no real legal structure in place in this particular case. Legal structures give us answers and mechanisms to get things done in stressful times. They’re great for having processes and procedures for dealing with problems like this. If those legal structures aren’t in place, you’re left with uncertainty.
The best things those partners can do now, is negotiate. That’s going to be challenging, because the one partner has a terminal illness and may not be as open to negotiation and may be motivated differently than the other partners.
This is a wake-up call for others. It’s never too late to go back and update your documents, to put the right plans and procedures in place.
How are you protecting yourself? What processes and procedures have you put in place? How will you make things work in the future? Join us in the comments below and let us know your thoughts and input.
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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 Michal Glenc.
About the Author
Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment (www.rshawnmcbridelive.com), gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can reach R. Shawn McBride at firstname.lastname@example.org or (214) 418-0258.
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