What are the best strategies to protect your business if a co-owner gets a divorce? How might the division of a co-owner’s interest affect the company if a partner becomes incapacitated or passes away? These issues should be addressed in advance in the company’s operating agreement or shareholders agreement. The corporate documents should identify the process to establish the valuation of an ownership interest, and provide options for each partner and the ownership group itself to protect the company and the investments of its principals.
Many entrepreneurs download forms, or copy contracts they find online in an effort to keep expenses down at startup. This often comes back to hurt the business when unexpected events affect the life of a business partner. This is why it is important to seek the advice of an experienced San Diego business attorney from the Watkins Firm. We have helped to advise and protect our clients through our 40+ years of experience serving the business, science and tech, real estate and medical / healthcare communities here in San Diego and throughout California.
Protect Your Business if a Co-Owner Gets a Divorce or Faces Bankruptcy or Incapacitation
It is important to establish contracts within your corporate documents to protect your business if a co-owner gets a divorce or faces substantial life challenges such as a bankruptcy, incapacitation or death.
One strategy is the use of a buy-sell agreement. If your business has two or more owners you should absolutely have a buy-sell agreement. The buy-sell agreement should establish restrictions and protections related to voting rights, as well as the precise conditions and process for the transfer of an ownership interest in your business in the event of a “triggering event.” A triggering event can include not only the divorce or bankruptcy of a co-owner, but incapacitation due to an unexpected accident resulting in serious injuries, a medical condition, disability, or other substantial life event or loss of life.
Another provision might establish the process for valuation of an ownership interest, or an overall valuation of the company itself. The valuation provides the basis for potential negotiations with a partner’s spouse or the potential buy-out of the co-owner’s interest altogether. and provide important protections for all concerned. For example, a well crafted buy-sell agreement should prevent the transfer or sale of an ownership interest without approval of the other parties. It could convert voting shares to a non-voting interest in the example of a spouse who has taken half of one of your partner’s ownership interests in your firm.
Contact the Experienced San Diego Business Attorneys at the Watkins Firm
How are you going to protect your business if a co-owner gets a divorce, files for bankruptcy, faces incapacitation or serious illness or loses their life?
If you are just beginning your company, or are an existing business in the midst of growth the Watkins Firm will help you to work through these questions and create or modify existing corporate documents to implement substantial protections.
We invite you to review our podcast Episode 34 – Business Formation, as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
