Over the Memorial Day weekend, I received the sad news that a business client of mine had died in an automobile accident. In addition to the grief and sadness that the sudden loss brought, they had the additional worry of how to keep his successful business running. My client was the sole shareholder of a company that employed a large number of employees on construction jobs, was the only licensed contractor employed by the company, and furthermore was the sole officer and director of the company (more on that later). This crisis has given me pause to think about how, if you own your own large business, you should plan for what happens if an accident strikes.
1. Make sure that at least one other person can make binding decisions in your absence. My client divorced his ex-wife a few years ago, and bought out her shares of the company. At the time, he simply did not want to place anyone else in a position of authority or trust within his company. However, better times came, and as he went back to work he forgot about appointing someone, say, as a secretary or vice-president, because he was a natural leader. Unfortunately, however, when he died, no one could keep the company, which had numerous large-scale construction contracts, in motion. Had someone been able to step in as an officer (or manager) of the company, contracts could have been continued, and the process, while practically not seamless, would at least have been a legally smooth transition.
2. Plan for someone that has practical experience in running the company, in your absence. In a sole proprietorship, a business may simply fold with the death of the owner. In a larger company, however, it is not so simple: there are numerous workers employed, contracts to be fulfilled, people who are relying on the company to stay around and complete its obligations. In a construction company, at least one person has to be a licensed contractor. My client was that person. In his absence, family members are scrambling to either obtain a license for one of the employees or to hire an employee holding such a license.
3. Make sure that someone knows the important details about your company and its business. Once again, in a sole proprietorship, the business may fold with your death. However, in a large company, at least one other person in the company should know important details such as what contracts are outstanding, how to pay the bills, the location of accounts, etc. Fortunately, my client kept at least two co-workers knowledgeable about these details, and in this interim period, they have been able to keep the company above water by, e.g., paying employees.
4. Plan your estate. Most fortunate of all, my client did make a good estate plan. He set up a trustworthy executrix, and made provisions for what would happen if his children were still minors (and one is). Had my client not made such provisions, his entire estate would be tied down in a slow and difficult process since the minor would have to have a guardian appointed and the company ownership would stand in a quagmire. Instead, the executrix will soon be appointed by the Court, and will be able to then appoint officers of the company and help the company get back on its feet during these difficult times. Therefore, though some matters within the company could have been planned better, my client's overarching desire to take care of his children inadvertently helped prevent a much larger crisis in his corporation.
If you have any questions about succession planning for your business, contact me at wldeaton@vnet.net.
Rabu, 30 Mei 2007
Selasa, 08 Mei 2007
Partnership and Corporate Disputes -- Final Settlement
I've been writing lately about different clients who've found themselves in disputes with their small business partners or co-owners. This week I settled one case, involving a man who'd owned both a corporation and a partnership with one other co-owner. Although emotions ran high between the two former friends, and they'll likely not be on speaking terms for a long time, the actual dissolution process was fairly tame and was resolved without going to court. Looking back on it, there are a few lessons to be drawn from this experience.
1. Put your agreements in writing. Although both gentlemen were the type who liked to do business on a handshake, they'd had the sense, 20 years ago, to put their business agreement in writing. When things between them went sour, and they started rattling their swords at one another, at the end of the day their resolution of the conflict was governed by the written documents that had been drafted two decades earlier. Had the two men operated on simply a handshake, as is quite often the case, I believe my client would likely have been simply shut out of the company and would have had no recourse to protect himself other than go to court.
2. Look at the balance of power. One thing my client, in retrospect, would have done differently is to have put more thought into the balance of power. The two gentlemen were each 50 percent owners, so the opposing party was agreed upon as President, and my client was the Vice President. They created, however, a three-person board, made up of my client, the opposing party, and the opposing party's wife. When things went bad, my client was, to a certain extent, shut out of decisions because his partner and partner's wife constituted a majority of the board of directors. If he had it to do over, I think he'd rather have appointed an independent third party (such as an accountant) as the tie-breaking director.
3. Know your rights. When things between my client and his partner first went south, his partner threatened to just push him out of the business. My client, quite frankly, was scared that he could simply be pushed out of the business. However, he came to an attorney specializing in business matters. We reviewed his business agreement as well as the applicable law, and I was able to advise him of both the strengths and weaknesses of his position. My client learned, for example, that if he and his partner could not agree, the worst thing that could happen is that the business could be judicially dissolved and the assets divided (or sold and the proceeds divided) between the two of them. On the other hand, he also learned that if the corporation and partnership were judicially dissolved, it would involve high court costs and would likely not bring the full value of the property. Armed with this knowledge, my client was able to go into negotiations with a certain degree of confidence, yet also knew that he needed to work together with his former partner so that they both could come out better.
If you have questions about a partnership or corporate dissolution, contact me at wldeaton@vnet.net.
1. Put your agreements in writing. Although both gentlemen were the type who liked to do business on a handshake, they'd had the sense, 20 years ago, to put their business agreement in writing. When things between them went sour, and they started rattling their swords at one another, at the end of the day their resolution of the conflict was governed by the written documents that had been drafted two decades earlier. Had the two men operated on simply a handshake, as is quite often the case, I believe my client would likely have been simply shut out of the company and would have had no recourse to protect himself other than go to court.
2. Look at the balance of power. One thing my client, in retrospect, would have done differently is to have put more thought into the balance of power. The two gentlemen were each 50 percent owners, so the opposing party was agreed upon as President, and my client was the Vice President. They created, however, a three-person board, made up of my client, the opposing party, and the opposing party's wife. When things went bad, my client was, to a certain extent, shut out of decisions because his partner and partner's wife constituted a majority of the board of directors. If he had it to do over, I think he'd rather have appointed an independent third party (such as an accountant) as the tie-breaking director.
3. Know your rights. When things between my client and his partner first went south, his partner threatened to just push him out of the business. My client, quite frankly, was scared that he could simply be pushed out of the business. However, he came to an attorney specializing in business matters. We reviewed his business agreement as well as the applicable law, and I was able to advise him of both the strengths and weaknesses of his position. My client learned, for example, that if he and his partner could not agree, the worst thing that could happen is that the business could be judicially dissolved and the assets divided (or sold and the proceeds divided) between the two of them. On the other hand, he also learned that if the corporation and partnership were judicially dissolved, it would involve high court costs and would likely not bring the full value of the property. Armed with this knowledge, my client was able to go into negotiations with a certain degree of confidence, yet also knew that he needed to work together with his former partner so that they both could come out better.
If you have questions about a partnership or corporate dissolution, contact me at wldeaton@vnet.net.
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