The Importance of Shareholder and Partnership Agreements
Vlf Video Educational Series – The Importance of Shareholder and Partnership Agreements
Charles Vethan: Hi, I’m Charles Vethan. Welcome to the Vethan Law Firm P.C.’s Video Educational Series. Today’s topic is the importance of shareholder and partnership agreements. Joseph, every growing business whether it’s a corporation and LLC, a joint venture or limited partnership, if they are growing, they need a thought out structured and negotiated company agreement. Can you give us some reasons as to why someone would want that?
Joseph Colvin: Frankly it’s because, when you start a business, you know who you are dealing with. There are certain events in life that can arise and suddenly you may have someone unexpected sitting at the business table with you. There’s five common situations, where this can arise. Obviously, if your partner dies, if one of you, or yourself or your partner get’s a divorce, if perhaps a shareholder wants to sell to a third party that’s referred to as a disposition. The other situation as we mentioned in the previous video segment was fiduciary duty issues that arise and finally what happens when an active shareholder or partner in a business becomes disabled. You have to be able answer these questions before those questions arise.
Charles: In the situation of a divorce Joseph, many states like Texas are community property states. If the business owner, starts his or her business after they are married, then the spouse has an equal ownership right in the company. One of the things a partner wants to make sure is that if one of the business partners has a divorce, then some type of agreement addresses that issue. What will happen to make sure that the interest of the divorcing partner is not awarded at least up to 50% to his or her spouse? And all of a sudden, you have the spouse now sitting at the management table making decisions. Not only it is awkward but also it could be detrimental to the business.