Companies your size typically require the owners to actually work in the business for the company to function. The owners have full-time jobs in their business.
So this comes into play in divorce, disability or death situations.
As harsh as this may sound, most business owners do not want to be in business with a non-owner spouse of their partner. The non-owner spouse often knows very little about the business and cannot participate as a true owner. Plus, the non-owner spouse often has his or her own career that they prefer over being a business owner.
So, in a Shareholder Agreement, we often adds language that says:
In the case of divorce, the divorcing spouse will pay cash to his or her spouse in the property settlement (as opposed to the spouse being given actual stock in the corporation in the property settlement).
In the case of death, the remaining business owners will buyout the surviving spouse. Life insurance is often used to fund this.
In the case of permanent disability, the remaining owners will buy-out their disabled partner because they need to get someone in to fill the shoes of the disabled owner. Disability insurance can be used to fund this, but it’s expensive.
We ask the non-owner spouses to sign off that they understand and agree to all of this.
Contact Mark D. Walters