For years I have reviewed shareholder and buy-sell
agreements from standpoints of business, valuation and practicality which are
distinct from a legal review. Generally such agreements are significant in
closely-held businesses. Undoubtedly when your attorney crafted your agreement he
or she was meticulous in considering the circumstances, needs and
practicalities. Precisely because such
care is given, these agreements have limited “shelf lives.” As circumstances,
goals and parties change, the very factors that made an agreement well-suited might
cause it to become ill-fitting. I have a
handsome suit that fit well when I was regularly running over 20 miles a week;
today I can’t wear it. Similarly, some buy-sell agreements that were apropos
only a couple of years ago are today sadly mismatched.
In the past year I have worked in a handful of cases in
which an outdated buy-sell or shareholder agreement has contributed to
substantial problems among partners or for some shareholders. Unfortunately,
unlike my constraining suit that alerts me to the need to replace it, buy-sells
too often are left in file cabinets until needed. The outdated agreement can be
a disastrous problem, extraordinarily difficult to cure if curable at all.
I urge you to revisit your buy-sell agreement if you have
one and consider one if you do not. In addition to your scrutiny and that of
your legal counsel, I suggest you consider an analysis for financial and
valuation points. Changes in terminology and prevailing practices can make murky
what was once clear.
I fully appreciate that legal counsel differs from valuation
considerations. I am not an attorney. My role in these matters is that of
assisting business owners and their counsel in discernment and clarity. Understanding
the impact of various terms on valuation is key to capturing the intent of
parties and avoiding difficult and expensive problems down the road.
I would appreciate your consideration as you undertake this
task. As always, I am glad to speak on a
“no-names” or confidential basis should you have questions. Give me a call.