I Hate My Partner!
Just like a high percentage of marriages end in divorce, so do a high percentage of business partnerships. Making matters worse is the fact that many friends start businesses together as a 50/50 partnership, so neither owner has control.
So how can you get a divorce when neither partner has control? The simple answer is a buy/sell agreement. These should be included in every LLC Operating Agreement, but most attorneys do not include them. A conspiracy theorist might say because if they did partners looking to divorce might not sue each other as the buy/sell would allow for the relatively painless divorce with minimal legal assistance.
Regardless, a buy/sell works as follows: one side names a price and terms for a buyout, and tells the other side, “I will buy you out or sell to you on these terms.”
What could be more fair? The partner invoking the buy/sell is forced to name what they believe is a fair price because they can be bought out at the same price. The partner on the receiving end of the buy/sell can pick whether to buy or sell. Meaning, if he/she thinks the price is low, he/she can buy. If the price is too high, he/she can sell.
The buy/sell is scary because if you invoke it, you can end up owning 100% or 0% of your company at your partner’s discretion. But it is the most effective and fair way that I have seen for a business divorce.
I personally have even used a buy/sell when it was not in the Operating Agreement. I just did it as if it was.
11/25/2019
By: Gary Grottke, CPA, Quality Back Office LLC