My client "Claire" is a partner in a construction company that she built alongside her partner, Bob, over 40 years ago. Now, looking forward to retirement, Claire has a challenge. Despite their shared history, Claire and Bob are no longer on speaking terms, making her buyout a tense and frustrating ordeal.
Their 40-year partnership agreement, with its vague terms on valuation, only exacerbates the situation. It had never been updated despite many changes in the business.
The problem is that despite hiring a valuation expert, Bob refused to agree to a fair market value of Claire’s equity stake in the firm. This left Claire with the choice of either pursuing expensive litigation or settling for a buyout price below what her equity is truly worth. The back-and-forth negotiations only deepened her frustration and resentment.
Oh, how she wishes now that they had taken care to make those transfer provisions clear and keep that agreement updated over time! Back when they were getting along so well, it would have been easy to do.
A well-drafted provision for valuating equity stakes could have spared her from this ordeal.
Take a lesson from Claire’s story. Don’t wait until it’s too late. Invest in a well-drafted founders agreement that protects your interests and provides clarity in times of transition. And do it while everyone is on friendly terms.
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