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Business men and women have very specialized needs when it comes to wills and estate planning.  We provide advice that integrates business and personal concerns and desires.

2.   A “Don’t Steal My Business” Non-Compete Agreement

Employe loyalty is not what is used to be and today’s business information is mobile.  This can create a lethal problem when a key employee leaves if a non-compete agreement is not in place.

3.     A “Staying Alive” Business Succession Document

Many businesses die with their owners.  Other business owners who have minority shareholders find out that they can not unilaterally sell their business even though they are a majority owner.  A good succession business document can help solve these problems.

             In today’s business climate, businesses cannot afford to make mistakes.  Yet there is one legal mistake that many small and medium-size businesses often make – they don’t have a buy-sell agreement in place.  This can create several big issues.  For example, without an agreement in place, a business owner may wake up one morning to find out that a stranger owns part of his business.  An owner that is getting ready to retire may find out that he can’t force his company to buy his stock.  And, perhaps most troubling, the majority owner of a company who wants to sell his or her business may find out the sale is vetoed by his minority shareholders.

             These problems can all be avoided if a proper buy-sell agreement is in place.  Who needs such an agreement?  The answer to that question is easy – any small or mid-sized company that has more than one owner really needs a solid buy-sell agreement.  It doesn’t matter whether you are a corporation, partnership or limited liability company.  If there is more than one shareholder, partner or member, an agreement should be in place.

             The agreement should cover a number of areas.  For example, many companies provide stock to employees.  Because many people are having economic trouble, they will try to sell this stock.  Without an agreement, they are free to sell it to whomever they want.  Or, let’s say they are fired.  Just because they lose their job, they are not required to sell the stock back to the company.  And a disgruntled former employee can create a lot of headaches as a minority shareholder, such as challenging the compensation paid to a majority owner.

             The agreement should also address what happens when an owner retires, becomes disabled or dies.  This is often a critical time for both the shareholder and the company.  If an agreement is not in place, a minority shareholder may be able to block the purchase of the stock of the retiring or deceased shareholder.  In addition, the agreement should include the necessary terms, such as drag-along rights, that make sure a majority owner can sell the business he or she has built.  Statutes in many states and standard provisions in many governance documents, such as operating agreements, allow minority shareholders to block a sale of assets or stock, but these can be overcome with an appropriate buy-sell agreement.

             The agreement should address several detailed items in addition to providing protection for the events described above.  For example, if one of the triggering events occurs, must the corporation buy the stock or does it have an option to do so?  How will the value be determined – by a preset agreed upon amount, by a formula, or by appraisal?  How will the purchase be funded?  Will the company be obligated to buy insurance or create a sinking fund?  If the price will be paid over time, what are the terms, including the amount of the down payment, the length of the payout, and the interest rate?  Will the remaining shareholders guarantee the payout?

             On a final note, the use of form buy-sell documents can be dangerous.  A buy-sell agreement must be carefully tailored to fit the specific situation.  In addition, it should be integrated with the business owner’s estate plan.  Most importantly, it needs to be in place before an issue arises.  A well drafted buy-sell agreement is a “must have” document for small and medium-sized businesses. 

Buy-Sell Agreement Video Tip

Businesses can suffer financially, particularly in an economic downturn, when they fail to understand legal missteps that can befall them.  Vanderpool, Frostick & Nishanian, P.C., suggests the following tips that can help avoid legal mistakes that businesses commonly make during an economic downturn.

1. Protect company business information prior to an employee’s termination – Many companies fail to proactively have employees sign agreements that protect their business information before a termination situation arises. It’s much more difficult to have employee’s agree to these terms upon termination.
2. Have employees sign non-compete agreements – Again, companies fail to have adequate non-compete agreements signed by their employees. They compromise their own company’s livelihood by not securing proper documentation.
3. Monitor company mortgage and account agreements – Companies can overlook the “fine print” in many account agreements, and therefore don’t foresee changes in account activity, putting themselves in a vulnerable situation when interest rates fluctuate or account terms change.
4. Collect payment from vendors regularly and timely – Companies can wait too long before filing suit to collect money from vendors, making it difficult to recoup monies owed to them. This can be a costly mistake, and easily remedied by managing past due account.
5. Keep track of loan agreements – Businesses should take time to review and manage loan agreements with their lending facility.

Last but certainly not least, businesses and corporations should not overlook the need to secure proper legal counsel before a financial crisis hits. Often companies try to save money by waiting to seek legal help until after the damage has been done, rather than being proactive to avoid legal problems before they occur. It is especially important in difficult economic times not to be “penny wise and pound foolish.”  A small sum invested for legal advice before entering into a legal transaction can avoid having to spend much greater amounts to solve legal problems after they occur.