When you ask most business attorneys a question like that, you get a stream of predictable double talk answers.
“It depends on the relationship between the partners.“
“It depends on whether the business is growing or stagnant.”
“It depends on when the true business leader wants to take it on.”
The status of ownership/partnership agreements comes up fairly early in most significant business processes. It’s in the first wave of questions when we’re doing due diligence related to growth financing. During strategic assessments, anyone would want to know who has bottom line authority, who has influence but is risk adverse, who is in a position to gain financially, etc.
Thirty-eight years as a growth strategist has taught me that cleaning up any holes in existing partnership agreements is important to do BEFORE opening the Pandora’s Box of real strategic planning. When it is unclear in any way who has the authority over strategic direction, pacing, investment, and risk – infighting can completely stifle the momentum, excitement, and power of real strategic working sessions. It’s important to go into the strategic planning process with your hands untied. Imagine if your strategic planning process opened your eyes and you became excited about diversification, global expansion, or online versions of your products/services. Then suddenly your previously silent compliant conservative “partner” threatens to torpedo the entire conversation because he/she doesn’t want to take any risk at all.
Recently, one of our clients needed to ask his sister to sell shares to him. He is the President and wants to grow the business. She doesn’t want to take chances. Her primary interest in the business is to provide an inheritance for her children and grandchildren, so structuring the buy-out based on current valuation provided some security for her. She wouldn’t be instrumental in making the next wave of growth happen, so this would be a good time to achieve her goals while untying her brother’s hands.
Cleaning up loose ends of partnership agreements solidifies relationships based on existing and past relationships. Expect to revisit your partnership agreements, board composition, and succession plans again once your new/updated strategic direction has been articulated.
So the answer is…before AND after.