Do you like to be forced to sell your personal assets at the wrong time to buy over your partner’s shares? I was approached to raise funds for a couple of million dollars for a partnership and they were distressed and were not able to think clearly ahead.

Background

2 partners came together to start a company more than 30 years ago and had built a thriving business together. About a year ago, they were given some advice to do a buy sell agreement in the event of death of either of the partners. However, the outstanding problem was that it was not a “funded agreement”.

When Partner A passed recently, there was an agreement for Partner B to buy back the shares. This allows the family of A not to get involved in the business that they did not understand. Partner B was able to continue the business and they do not need to share the profits of the future business. But the problem was that Partner B had no cash on hand to buy over the shares immediately.

• “Having a reluctant partner can be like cancer that grows and potentially creates lots of problems in other parts of the body”.

Action was required immediately. So they are forced to liquidate cash, sell investments and properties almost on an immediate basis. We also know that it takes some time before the money is collected from the sale of the property, if they actually can get a good price.

• “This is a costly exercise!”

Even if they are able to raise $2M, would you as Partner B want to pay $2M full in cash for this exercise of transfer of funds when there are other options? What is the alternative? If they had funded their buy sell agreement in advance with discounted dollars, they do not need to come up the full amount. In fact, depending on how you structure it, it could cost as low as 1-3% per year of the $2M and the full amount of cash will be available immediately without the need to sell your best assets at the wrong time.

There are also many other considerations with regards to business planning but this is important if you have a partnership together with another party.

If you are a business owner or know someone who is in partnership with another, I will be happy to have an initial conversation to see if there is a fit on either sides to journey together and be your trusted advisor.