Here’s something we all can agree on: Sometimes business partners disagree.
I’ve even had clients come to me for help forming a new partnership with someone who has disagreed with partners in the past, so there is concern about the future. Why not buy a disagreement insurance policy? Then when there’s a costly disagreement, you’re covered.
Well, unfortunately, the commercial marketplace doesn’t offer disagreement insurance. We have to wonder why. My best guess is that disagreements are so frequent, rampant and destructive that no insurer wants to take on the risk. It could never be worthwhile.
If you can’t buy insurance, is there anything you can do about disagreements?
You can plan.
We’ve talked a lot about partnerships in previous blogs. One key to having a good plan in place is to know what you will do if the partners cannot resolve a disagreement. That typically means mapping out steps in your governing documents. Maybe you’ll have a mediation. Maybe you’ll turn to arbitration. At what point is there a buy-out?
Partners can decide in advance what steps they will take to work through a disagreement. And those steps can be whatever is agreed.
Remember the Fertitta brothers agreed to face each other in a jiu-jitsu match to resolve disputes involving their ownership stake in the Ultimate Fighting Championship, a mixed martial arts promotion company? (The Las Vegas entrepreneurs acquired the rights and assets of the UFC in 2001 for $2 million and sold their stake last year for $4 billion. So maybe their disagreement strategy didn’t seem extreme to them, and maybe it was brilliant.)
More often we see buy-sell agreements between partners that are designed to preserve the company’s value.
We want to avoid spending so much money fighting that the company is destroyed and cannot continue. People have worked too hard. You have so much invested in your company, so you want to make sure that no matter what happens in a disagreement, there’s a path forward. Without the option of insurance, it falls upon the business owners to make sure a proper plan is in place. You cannot count on state statutes to protect you. Your protection must be built into your governing documents.
What are your thoughts on this? Have you dealt with disagreement in your documents? Join us in the comments below and let us know your thoughts and experience.
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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 Kerem Yucel.
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.