If you own a business or advise business owners, you know that having a business partner can be one of the most fulfilling relationships (outside of a marriage). It can help “round out” your skills, give new perspective to your business, and allow the company to grow much faster than it would if you were the only owner.
As individuals, we were built for relationships. Business is no different.
But we can all go through difficult times in our lives. Sometimes people make poor decisions. Other times events occur that are completely outside our control. We can be seriously injured in a car accident. We can have health issues that prevent us from running the business or—even worse—that we unexpectedly pass away from. Business partners can also make bad or even malicious decisions that impact the financial position and reputation of the company. Finally, business partners can go through marital challenges that end up painful divorces.
All of these events have huge ramifications for that the business owner’s personal life. In some cases, they can have a catastrophic effect on the business.
Business owners should have an agreement with their partners that lays out how these events will be handled. They’re often referred to as “shareholder,” “buy-out,” or “operating” agreements, depending on the type of business entity.
Importantly, these agreements can be created at a time when no crisis is going on and the owners thoughtfully decide issues like whether they want to potentially be in business with their partner’s ex-spouse after a divorce. Or, they can decide if one of their partners passes away, how is that partner’s spouse going to be bought out and to avoid a costly probate process?
If a business owner already has an agreement like this, it’s important to have it reviewed and make sure that it’s still consistent with the goals of all of the business owners.
