Evon M. Spangler, partner at Spangler & de Stefano, PLLP, is a business attorney in St. Paul, Minnesota. When I represent clients who are business owners in drafting their estate plan, they oftentimes need to work with a business attorney to ensure there is a succession plan for their business. One way to do this planning is through a buy-sell agreement, which is what Ms. Spangler’s article addresses. – Rachel Schromen, Schromen Law, LLC
The Death of a Business Owner
Hypothetical: Betty and her sister Amy are equal owners of Betty’s Things, Inc. They have been in business for 10 years, and their business is going well despite the fact that Amy’s husband does not like Betty because he believes that his wife was entitled to more money from the business than Amy has received. Amy unexpectedly dies in a car accident. Betty contacts an attorney because Amy’s husband called her demanding that the business is dissolved and that Amy’s estate receives two-thirds of the business assets. To add insult, Betty’s Things, Inc. is sued by the other driver involved in the car accident.
In meeting with the attorney, Betty is shocked to hear that Betty’s Things, Inc. had been administratively dissolved by the Secretary of State’s Office five years ago because the business failed to submit its annual renewal fee. In addition, Betty is distraught when she finds out that most likely the corporation lacks a corporate veil because the business was dissolved and furthermore while the corporation filed its Articles of Incorporation with the Secretary of State’s Office, it did not do anything else regarding corporate records. As a result, there are no records of corporate minutes, which neither Betty nor Amy thought were important because they weren’t a Fortune 500 company and therefore, they believed they weren’t a true corporation that had to do something formal like have corporate minutes. The significance of not having a corporate veil Betty finds out is that hers and her sister’s estate’s personal assets are most likely going to be available to creditors in the event that insurance does not cover any judgment in the lawsuit involving the car accident. While all of those items stress Betty out, she is most stressed when she is told that because there was not a buy-sell agreement between her and Amy, the new owner of the business is her brother-in-law who despises her. Betty is distraught when she realizes that these issues could have most likely been avoided if the business had hired an attorney to assist them and advise them.
A buy-sell agreement would have provided protection to Betty. Similar to a prenuptial agreement in a pending marriage, a buy-sell agreement is between owners of a business and provides the terms that the owners will follow in the event that there is a death, divorce, disability, bankruptcy, retirement or a deadlock between the owners. As in the case of prenuptial agreements in a pending marriage, a buy-sell agreement is completed when the owners are all getting along. It provides an agreement as to what happens when the owners are not getting along or something happens to one of the owners, such as a death. Buy-sell agreements are an essential tool for businesses that have two or more owners because the buy-sell agreement controls when one of the owner’s dies or another triggering event occurs.
Spangler and de Stefano, PLLP works with business owners on establishing and implementing buy-sell agreements. A buy-sell agreement provides protection to you and your business so that in the event that something bad happens, you and your business are protected.
The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader or Schromen Law, LLC and the reader. The information contained herein is not offered as legal advice and should not be construed as legal advice.