I just saw it happen again last week. I was meeting with a very successful convenience store operator who was interested in buying some convenience stores I am presently representing. I have known this particular convenience store operator for several years and have sold stores for him in the past.
While I was sharing with him the information on the stores he was interested in buying he blurted out. You probably already know that my partner and I are not getting along. As a matter of fact we are not getting along at all! I replied that I wasn’t surprised, because I had recently met with his partner on another matter and even though he had not given me any indication of the status of their partnership being on the outs it was obvious that from listening to him that he had done everything himself and he didn’t need anybody to help him in operating convenience stores, because was so good at what he does. (In case you didn’t pick up on this last statement, I was referring to the guy’s ego, which was quite large).
Anyway, I responded to my friend with whom I was sharing the information about the stores I was representing that I was aware that him and his partner owned a store together and that with one store together I was sure they would get things worked out. He looked at me and said one store? We don’t own one store together. We own six stores together. Which I replied immediately with. Do you two have a buy/sell agreement? He responded with oh no, but it won’t be a problem. We will just figure out what each of the stores is worth and I will buy him out. I tried to explain to him that it doesn’t really work like that and there are a lot of unpleasant things that can come about from a situation like this.
However, it is too early in the two parties’ relationship for him to realize the seriousness of their situation. Why do I say this? Because I know from experience what can happen when individuals get into business together and build a profitable business and then things begin to change and at some point the partnership isn’t working like it did in the beginning. That is why it is so important to have a buy/sell agreement in place.
Let me be a little more direct regarding a buy/sell agreement. If you are in partnership with someone and don’t have a buy/sell agreement this just dumb. I will explain why.
I believe in the theory of reality. And the theory of reality says that everyone and I mean everyone is going to have significant life impacting events. What do I mean by significant life impacting events? Let me list a few to explain what I am talking about.
- Disruption in the marketplace
- Dissolution of partners
These are issues that are going to happen to all of us at one time or another and to be in denial and not recognize this is dumb and can be very expensive.
So back to the story about my friend and his partner who are not getting along and own six convenience stores together, which by the way are fairly new stores and very profitable. My friend thinks he is going to tell his partner what he thinks the stores are worth and is going to buy the stores from his partner. And what happens if his partner doesn’t want to sell? Well, without an agreement nothing will happen. The relationship will continue to deteriorate and so will the business. It is possible that it could get so bad the two partners end up suing each other or one partner could file a partition law suit, whereby forcing the sale of the businesses. Things could get very messy and out of control. And why is that? Because nobody wanted to take the time or effort to write a buy/sell agreement.
Oh, but wait it gets worse. What if my friends partner dies suddenly and now he is in partnership with his partners widow an individual who knows nothing about the operations of the business, because they have never been involved in the business and is now going to get 50% of all of the profits from the business and does nothing to help with the operations of the business. Why would the widow want to sell the goose that laid the golden egg? She is getting a lot of money and doesn’t have to do anything and she doesn’t have to sell to my friend either.
Yes, I could go on and on with horror stories and examples about not having a buy/sell agreement.
As I mentioned I believe in the theory of reality and things do happen in life that no one of planned on or expected and it is only good business to make sure every partnership has a buy/sell agreement in place. Regardless whether the partners are friends or relatives. Just about any attorney can prepare a buy/sell agreement or you can go on the internet to legalzoom.com or email me and I will send you an agreement I have in my files. Just make sure you have something in place before you or someone close to you experiences one of those significant life impacting experiences I talk about and gets to experience the theory of reality.