July 2014

Planning Lessons from the Clippers

Have you made written plans for the continuation of your closely held business? Are these plans complete and up-to-date? Learn from the Clippers debacle by planning ahead! There is ample opportunity for owner disagreements when privately-held businesses have multiple owners. Stewart Law provides sound business legal advice that is forward thinking. We believe that a close attorney-client relationship is essential to our client's success. Having advised a wide variety of businesses through formation, growth and disposition, Stewart Law stands well-equipped to help you achieve your goals.

The NBA playoffs culminated in the matchup of perennial powerhouses. Rather than praising athletes and teams for reaching the pinnacle of their profession, media spotlight could not stray away from its main attraction, Donald Sterling. After having recently made disparaging comments about African Americans, the NBA is seeking to force him to sell his Los Angeles Clippers as public outrage continues. Although it is just a matter of time before his team is sold, the Clippers saga reinforces many lessons in buy-sell planning that we believe are useful for our business owner clients.

1. A written buy-sell agreement is an indispensable tool in situations where a business has multiple owners.

If one of the owners of a closely held business was featured in the headlines in a negative way, would it be helpful to the other owners if a prior written agreement forced the transfer of the defaulting owner's business interest?

2. Agree to a fair valuation method and reasonable buyout mechanism in the buy-sell agreement in the event a buyout is triggered.

One of the issues in the Sterling case will be whether Donald Sterling will be able to get a fair price for his ownership interest in a reasonable period of time. To the extent closely held business owners are able to agree to valuation and method in advance of a triggering event, it lessens the possibility of a future fight over such issues.

3. Get the business owners' spouses to sign a consent to the buy-sell agreement.

Shelly Sterling, Donald's wife, originally took the position that she shouldn't have to give up her rights to the Clippers because of Donald's conduct. If she consented to the NBA constitution, that legal position would have been much more difficult for her to take. In a closely held business, it's a good practice to have the owner's spouses join in the buy-sell agreement.