Have you ever worked with someone who you agreed with 100 percent of the time? Chances are you probably haven’t. There will likely be some sort of disagreement along the way, even if it is minor. Co-owners of a business are no different. No matter how well they get along, they won’t agree 100 percent of the time. Sometimes a disagreement can be healthy and lead to new ideas. But if it is serious enough, it could lead down a path of mistrust and the possible demise of the company.
Today I want to share a real situation that occurred.
First, I want to share a little background. For part of my career I owned a company that administered Profit Sharing Plans to numerous private companies. The toughest part of this business was getting the multiple owners of a business to agree on the size of the tax deductible contribution to the plan.
Making decisions on what would be part of the ownership’s current compensation versus plan contribution triggered unhealthy disputes. Some owner’s opinions were so off-base that it escalated the disagreement into a full-blown conflict. Unfortunately, this was all too common. Their stance needed to loosen up a bit for the greater good.
Sooner or later, a compromise eventually straightened out the various owners’ viewpoints and solved the plan contribution…at least for that year. But if these owners couldn’t agree on a relatively easy decision like this, what were the odds they could keep their company alive?
Fast forward to the present. The stakeholders of this company have managed to avoid terminating the company by adjusting their thought process to be more in sync with one another and they are feeling comfortable.
Then a curveball is thrown their way. The current debate revolves around the question, “What are the ownership interest redemption rules when a partner dies?” That starts a new dialogue with more discussions that can be calm or very antagonistic.
My astute shareholder clients had thought about some alternatives and potential consequences before this curveball hit them. They compromised on the buy-back structure, but understood their wishes had to be written out. With the guidance of legal counsel, a shareholder agreement was prepared. Having this signed document in place kept the peace between those who inherited the stock from a decedent and the remaining living owners.
Lack of a plan most likely would have caused mistrust, anxiety and potential conflict, especially if an owner passes away suddenly. Anger and chaos only escalates the disagreement to a point where potential legal action may be required.
I help business owners put a solid succession plan in place in case something happens to them or their business partners. By providing balanced advice, senior management can understand the ramifications of different scenarios and can choose the right plan for their business.
Contact me to learn more about my succession planning and business continuity services.