“Whoever pulls the trigger first sets the conditions,” Aussem says. “The other party has the right to either accept it or pay for it. I`ve used this a few times, and it forces people to be reasonable. Adam and Eve, Romeo and Juliet, Abbott and Costello, Sonny and Cher, Ford and Firestone are inevitable examples of disagreements, deaths, quarrels, divorces and break-ups in partnerships. Even the Ford-Firestone relationship, which lasted nearly a century, ended in divorce. To quote one client, “There are two ships I try to avoid — sinking ships and partnerships.” “If you use a push-pull mechanism, it works by definition as a deterrent, because you`ll be very careful, because you don`t know if you`re going to see a million dollars or if you`re going to have to pay a million dollars,” Aussem says. One of the keys to a buy-back contract is the valuation of a company. But what if the contractors can`t agree on how to do it? Jim Aussem, co-chair of Weston Hurds practice group for succession, trust and succession, sometimes used a push-pull agreement. It is not surprising that the best time to negotiate and implement a buyout agreement is when the company is created. In the start-up phase, the founders/investors are in a good mood and optimistic about the company`s prospects.
As partners argue over the direction, finances and value of the company, it will be very difficult for them to agree on an exit strategy. But here`s the catch. The second owner can either accept the terms and sell his share of the business, or take advantage of the push-pull agreement and effectively buy half of the activity of the first owner under these conditions. First, the buy-sell rules that provide that minority owners receive low ratings at the time of their termination are much more likely to result in litigation with outgoing investors. Low ball valuations are the ones that limit outgoing investors to book value rather than market value for their interests. Nevertheless, majority shareholders certainly have the right to make a Book Value Exit award available to minority investors and, if they do, the buy-sell agreement should make it clear to demonstrate that the minority has made an informed decision to accept that assessment. Business decision and deadlock. Most entrepreneurs spend more time with their co-owners than with their spouses.
Friction and differences of opinion can paralyze a company to the delight of its competitors. In Texas, a court may appoint a judicial administrator to handle the case of a blocked company. Ing a person under judicial control to run your business without participation in the company is a bad alternative to a property contract that resolves a dead end.