We have written extensively about shareholder, stockholder and partner squeeze outs and freeze outs (otherwise known as business divorces) and much of those conversations deal with tactics, strategies, responses and counter responses once the squeeze out or freeze out is underway.
Another view is to deal with issues of ending the stockholder or partner relationship at the beginning by inserting what amounts to business prenuptial provisions into the original organizational documents. This technique accepts that nothing lasts forever and as long as that is the case, business partners or stockholders might as well deal with that termination at the inception. Most partnership agreements or stockholder agreements or buy sell agreements have some provisions regarding termination or which come into effect upon the death or disability of the partner or shareholder.
The technique we are proposing goes beyond the usual buy out provisions. Some of the features of the business prenuptial which would be part of the partnership agreement or buy sell or shareholders agreement would include provisions for resolving a deadlock, distributions to avoid tax on phantom income, when an owner’s employment can be terminated, accepting alternative dispute resolution, what the majority owners vs. the minority owners can expect, etc.
The drawback is the minority owners are the ones who are more interested in resolving at the beginning of the business relationship issues than when the business relationship ends. Therefore, the minority owners will not have tremendous leverage to include these business prenuptial agreement provisions in agreements at the start of the relationship.
Horowitz Law Offices represents clients in business disputes, stockholder disputes and partner disputes. You are welcome to contact us at 312 787 5533 or firstname.lastname@example.org