Business Divorces

What can be the most difficult thing about running a business? Ending it.

The Iowa Law Blog has a brilliant post on the subject: How to Avoid the Business Divorce.

I say brilliant because I say about the same thing to all potential business start ups:

Every business partnership (whether in a corporation, LLC or true partnership) should consider a buy-sell agreement from the outset. As Central Iowa financial planner Art Dinkin says, Begin with the End in Mind.

A buy-sell generally covers how an owner can sell shares and how to value those shares. Further, a good buy-sell agreement sets forth what happens in the event of death, disability, retirement, divorce, bankruptcy or other considerations.

Effective buy-sell agreements will generally require a right of first refusal. This means if one owner finds an outside buyer for his shares the owner must first offer those shares to the other existing owners. This protects the owners from suddenly running the business with someone they did not intend to have as a partner.

I especially look at the buy-sell agreements for limited liability companies. I had a bad experience in trying to get a client out of one (he did) and I am twice shy when once bitten.

Bankruptcy alternatives: Assignments for Benefit of Creditors

Recently, I heard a United States Bankruptcy Judge decry the bankruptcy bar’s lack of imagination in finding alternatives to bankruptcy. I must admit that the judge’s statement had some truth insofar as using attorneys using alternatives to bankruptcy but missed the more important point that Indiana’s insolvency laws are not without their problems. I offer assignments for benefit of creditors (hereinafter Assignments) as a prime example of an Indiana law which is so archaic that its benefits to an insolvent business may be overlooked by most attorneys.

Assignments create a process where a troubled entity ( who is called the "Assignor") transfers property to a third party (who is called the "Assignee") in trust. The Assignee acts as a fiduciary for the creditors by liquidating all assets and then distributing the proceeds to the creditors.

Assignments have a simpler procedure than bankruptcy and the possibility of moving much quicker. However, Assignments have no "automatic stay" like when a bankruptcy is filed to halt litigation against the assignor when an assignment is executed..

Assignments will not be a good fit for all insolvent businesses. The business must have assets to liquidate.

If you think that you might have a need for an Assignment for Benefit of Creditors, please telephone me.