You do not need to own an NBA franchise to have a multimillion-dollar family business turn into a family dispute.
The Los Angeles Lakers provide a very public example of what can happen when family, money, control, and succession collide, and a family is removed from the family dinner table to the law firm board room.
After longtime Lakers owner Jerry Buss died, ownership of the team passed to his children through family trusts. Over the years, disagreements among the Buss siblings have spilled into the courtroom and the media over who controls the team, who has authority to make decisions, and, most recently, whether the family’s remaining ownership interest can be sold.
The lesson for every closely held or family-owned business is simple: do not wait until there is a dispute to decide the rules.
If a corporation, LLC, partnership, or family business has multiple owners, its governing documents should answer difficult questions before they become personal:
- Who has authority to sell the business?
- Can one owner sell his or her interest without the consent of the others?
- Do the other owners have a right of first refusal?
- What percentage of ownership is required to approve a major transaction?
- What happens when the owners are deadlocked?
- What happens if an owner dies, becomes disabled, divorces, retires, or simply wants out?
- How is an owner’s interest valued?
- Can an owner be bought out, and under what circumstances?
- Who controls day-to-day operations?
- What happens when ownership passes to the next generation?
- Is there a mechanism for resolving disputes without destroying the company—or the family?
These issues can be addressed through properly drafted operating agreements, bylaws, shareholder agreements, buy-sell agreements, trusts, and succession plans.
A successful business may start with two brothers, three friends, or a parent and children who trust each other completely. Twenty years later, the business may be worth millions of dollars, spouses and children may be involved, and everyone’s financial interests may have changed.
That is the worst time to discover that no one agreed on the rules.
The Lakers are worth billions, but the underlying problem is one that can affect a oil service company, construction company, developers, medical practice, real estate company, family farm, dealership, or any other closely held business.
Good corporate planning is not just about protecting a business from outsiders. Sometimes it is about protecting the owners from disputes among themselves.
If your business has multiple owners, now is the time to review your corporate documents and make sure they clearly address ownership, control, succession, buyouts, sales, and deadlocks—before a disagreement turns into litigation.
Author’s Information:
Jackie Dove Broussard, J.D., M.B.A.
Partner
BROUSSARD | DOVE
About the author: Jackie Dove Broussard – Broussard | Dove
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