“Johnny, Billy, there is enough for both of you. Johnny I want you to cut the cake into two pieces and Billy you get to choose which piece you want”
So it is with business partners.
I am often asked to develop transition plans for businesses to be passed on to children. Occasionally parents insist on a 50/50 split. I don’t like these arrangements because they instantly create governance issues. My response is to always push the family to come up with a FORMAL plan on how they will “break the tie” in future disagreements and include that plan in the by – laws.
But my all – time favorite is the “Texas Shoot Out” Provision to be included in the buy – sell agreement.
It’s very simple:
Johnny can offer to buy Billy out at any time for a specific non negotiable price.
Billy has only two options:
- He must either accept Johnny’s offer; or
- Offer to buy Johnny out for exactly the same terms.
If Billy chooses #2 and reverses the offer Johnny MUST accept it.
Of course it could be Billy making the first offer to Johnny.
Either way, once one party makes an offer, the other MUST accept it or reverse it. Refusal to do either constitutes acceptance.
Kinda keeps things above board.