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Triple Crown Communities…
Are You Prepared If A Major Event
“Triggers” Change?
Written by: James G. Woltermann
JAMES G. WOLTERMANN, MEMBER
When Triple Crown Developers started more
than 20 years ago it was a small group of
business owners, in their professional
prime, with an idea to create a unique “highend” residential community. The members
worked diligently to handle every legal detail
when creating the business entity. All of their
hard work has paid off in the development of
Triple Crown Country Club.
Today, people everywhere recognize Triple
Crown Country Club as the finest country
club and residential community in Northern
Kentucky. With its top-rated golf course,
luxurious Southern-style Clubhouse and
idyllic neighborhoods, Triple Crown is truly a
gem for our region. Now, the same members, more than 20 years later have significant investments and wealth tied into the
business partnership. The issue for many
business owners, like the members of Triple
Crown Development, is that the amount of
protection and legal securities needed in the
beginning is dramatically different than the
protections needed when the business
grows and has significant wealth.
Business owners and members need to
ensure that their legal protections grow
when their business grows. Divorce, death
and disability happen and they affect
entities of all types. Business owners need
to ensure that they have created succession
plans that insulate the company, the members and the investments. The members at
Triple Crown Developers recognized the
need to further protect their assets and
spent the necessary time each year working
with ASWD Business Practice Group, led by
Member, Jim Woltermann, to ensure protections in the (4) major areas:
1. Buy/Sell Arrangements: As members
and business owners get older and assets
grow larger, you must create a process to
identify the “triggers” that could cause major
disruptions to your business. The first thing
to do is to draft or update your Buy-Sell
Agreement (“BSA”). This should be a critical
priority for business owners! BSAs are
contractual agreements between the
owners of an entity that require or give an
option to purchase or sell an owner’s
interest upon the occurrence of a business
disruption or “trigger.” Commonly used
triggers include: death, permanent and total
disability, bankruptcy, divorce, or retirement
of an owner; execution of a judgment
against an owner; termination of an owner’s
employment with the entity; or any other
event the owners wish to protect against.
2. Accurate Valuations: A critical, and often
overlooked, aspect of any BSA is the valuation of the entity. Problems often arise when
owners “agree to agree” on a value at a later
date or use a valuation method that is not
appropriate for their particular entity. ASWD
worked with Triple Crown Developers to find
a valuation that was fair and appropriate.
3. Succession Plan Creation: Succession
planning is the next item that must be developed and should also be considered when
drafting a BSA. Succession plans are
especially
critical
for
family-owned
businesses where the departure of the
owner may leave remaining family members
fighting over who takes over the management role. A well-drafted plan identifies who
will succeed the managing owner upon his
departure and, hopefully, bring a smooth
transition for the next generation of owners
and managers.
4. Estate Planning Implications: Finally, a
BSA is a major part of any estate planning
analysis. Small businesses are hard to sell
and a minority interest in a small business is
even more difficult to sell. Without a BSA,
the surviving spouse may be left with just a
piece of paper representing an ownership
interest but having little marketable value.
The critical aspect of any BSA is fairness,
simply because no owner, or member, can
ever be assured whether he or his surviving
spouse will be on the selling or buying end of
the transaction.
As with the Triple Crown Developers, your
BSA, like an estate plan, should be reviewed
and updated from time to time as your entity
evolves to ensure your assets are protected
and transitions, for every stage of life, are
smooth. The ASWD Business Law Group has
more than 100 years of experience, and is
here and ready to advise your team on the
development or updating of your BSA. Don’t
let a “trigger” hurt your business productivity.
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