Protect Your Business From Working With Unknown Shareholders or Owners

Sometimes we go into business by ourselves. But other times, we start, own, and manage a business, with other people. Whether they are partners in the business, managers in an LLC, shareholders, or other management and ownership partners, there are a multitude of corporate entities that people use to start businesses, that include others.

Involuntary Transfers of a Business Interest

As a general rule, you can go into business with whomever you want. If you don’t want someone to be a partner or a managing member or a co-owner or shareholder, don’t offer to them or sell to them any interest in your business.

But sometimes, things happen that can allow other people, who you don’t want to be in business with, to suddenly take an ownership interest in your business. Your corporate documents should be ready to handle this, when and if it happens.

There are a number of ways you can find yourself suddenly in business with someone you don’t want to work with.

Imagine that a co-owner of your company dies, leaving his or her interest in the business to the family. Imagine someone got divorced, and their shares in your business are now owned by their now ex spouse. Bankruptcy courts can take an ownership interest in a business, and put it in the hands of a total stranger.

Your business, which had nothing to do with any of these scenarios nor did you cause them, now has an owner or manager or shareholder, that you didn’t want to have any interest in the business, and that you have no desire or possibly any ability to work with.

Buy Back Provisions

Your corporate documents can have a provision that in the event of an involuntary transfer of interest or ownership of a business, that the business can buy back whatever part of the business the new owner now has.

The provision should include a way to value the new owner’s interest or shares in the business, and, if the amount could be sizable, your corporate documents probably should say that the company can repay the new owner for the interest in the business over time or in installments.

Spousal Consent Forms

Because divorce tends to be a common occurrence, you can condition a shareholders ownership on the shareholder’s spouse signing away her rights to own or control the shares the shareholders is about to own. This is called a spousal consent form. This document has to be signed before the spouse takes ownership of any interest in your business.

Payment Only

Your corporate documents can also limit how a new owner uses his or her shares or ownership in a business.

With shares, your shareholder’s agreements and corporate documents can say that new shareholders that get stock by operation of law, can only realize the financial rewards of owning the stock—they cannot participate in the operation of the business itself.

Protect your business from unforeseen occurrences. Call our Fort Lauderdale business litigation lawyers at Sweeney Law P.A. at 954-440-3993 for help today.

Source:

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