Do I need a lawyer?

pgiesin

I have seen a lot of different types of questions come through the Haus, so didn't hestiate when it came to asking the following question. I am not necessarily for advice on what I should do, rather if I should get some advice on what I should do.

As some of the folks in the JOS know I have made a decision to change careers. I have went back to school to study math with plans to eventually become a teacher at either the high-school and/or college level. This process is most likely going to take a couple of years to complete, escpecially if I continue on with Master's level work. Until then I plan on continuing to work at my current job.

Now, my current job is at a boutique software develpment firm. I am one of three principals in the company and have been for the past 10 years. Being a small company the contractual portions have been a bit loose, to say the least. The one thing we don't have in place but have briefly discussed is a Buy-Sell argeement.

I have to admit I am not really a business person and don't completely understand all of this. My understanding of the Buy-Sell is that it defines the terms a partner needs to adhere to when and if they decide to leave the company. During the initial discussions such things as how to evaluate the worth of the company, resignation requirements, etc were discussed. For example, we discussed that a partner would need to give something like at least 3 years notice before leaving in order to get 100% of their invested value. However, none of this has been formalized. In fact it hasn't even been discussed again.

So I am trying to decide when I should tell the other 2 partners of my plans. I don't want to be in a position where I can't leave for a few years once I am ready. I also don't want to burn any bridges or get taken advantage of. I don't know if I should wait until something is in place. If I start pushing the issue then they will already know something is up. I have been with these guys for 10+ years and don't think they would railroad me, but business is business.

I just don't know how to best handle this?

Spokane_Al

Another important component of a buy sell agreement is how the remaining partners will buy out the one leaving, and should also define the time frame in which that will happen. That is often a challenging part of the puzzle in that as the net worth of the company continues to increase, the cost to buy out the departing partner is beyond the financial capability of the remaining partners without decimating the company or driving it and/or the remaining partners into debt.

Insurance often also plays a part in these types of businesses. The policies are usually purchased by the company for each partner, and the company is named as the beneficiary. If a partner dies, the company now has the cash, via the insurance policy, to pay his/her portion out to his/her beneficiaries without destroying the company and/or bringing in the previous partner's beneficiaries in as unwanted new partners.

penlynwilson

Hi Peter: We have some friends who have a small company and ended up kicking one of the partners out. They did have the agreements in place, but are still having problems because they guy they kicked out is fighting them on the valuation.

I would suggest talking with the other partners, suggesting that the group hire an attorney to put the agreement in place "just in case." You are doing it for the protection of the company and all those in it. You aren't doing it to be selfish.

talltim

As a lawyer who has seen this go both very well and also badly, I'd agree with Penny's guidance. Regardless of if/when one of your partners wants to make changes, it is always best to have everyone agree to a written framework of what that could be -- away from some precipitating crisis and outside of the concomittant time constraints. Even if there is a subsequent debate or even dispute about it, having a clear, written place to start from makes things a great deal smoother/easier. Best approach, before anyone involves counsel -- is to strike a business agreement and understanding of how you all want to handle things, and then have a good counsel draft that up in proper form.

There are a whole host of other issues around who that attorney is representing that are beyond the scope of this discussion, but the core advice to (a) make a busines agreement with your partners (preferably sooner than later; and (b) get that committed to writing and signed by everyone are unchanged.

chris malone

I think your partnership needs a lawyer before each of you needs their own.

You're right, business is business. Paper it all up. Even then, you can't provide for every contingency and if someone decides to get sh**ty they still will; agreements or no agreements. Lots of businesses start amongst trusted friends who don't need lawyers and then they grow and then there's dough at stake and people change etc and then there are issues. I'd sit down with your partners and get some kind of basic agreement that can then be lawyered up FOR ALL. It doesn't have to be adversarial, and will less likely to be so the sooner the communIcation begins and you get an agreement. My experience is that the sooner you address the subject the less likely there will be partnership issues. Maybe your other partners are thinking the same way but nobody is addressing it?

Good luck.

Michael Byerts

Tim is absolutely right. Written agreements are infinitely superior to oral understandings. If it were me, I would probably discllose your intention to leave before you negotiate the buy-sell agreement. I don't know NJ law on this point, but woud strongly suspect that if your company is legally a partnership, you owe a fiduciary duty to your partners. As a result, you may have a duty to disclose material information to them. Should you enter a buy-sell agreement, and then shortly thereafter tell them you are leaving, they could challenge the agreement on the basis of your failure to disclose.
Also, retaining a lawyer for the partnership to draft the agreement could get messy. Again, I don't know NJ law, but generally a lawyer for an entity represents the entity, not the individuals. If you tell the lawyer your plans, they may have a conflict and be required to either withdraw, tell the other partners, or both.

pgiesin

@ALL: Thanks for all of the comments. It definite gives me a lot to think about. I definitely think I need to get this out there so we can start dealing with it. We do have a company lawyer that is helping us deal with all of this. As the company is growing we have started dealing with these types of issues. I agree that everything needs to be in writing in order to help minimize the number of issues.

@Michael: I have never thought of it that way. I have been concerned that if I tell them know that they will try to take advantage of me when negotiating the buy sell. But I can see how they could feel slighted if I do it the other way around. So having everything out on the table is probably a good idea.

@Al: It is funny, we already have various types of insurance in place to help cover these events. This was triggered by some health issues of one of the partners (not me). 

 

Gordon Cherwoniak

Peter,

As mentioned not all contingency's will probably be addressed.  I might suggest that you and your partners look in to arbitration as a clause for dispute settlement.  This may avoid clostly court battles and limit the time for a decision. 

Gordon