The Long Game

A business can change quite a bit without anyone stopping to update the documents that govern it. That can become a problem when the business has grown, new owners have joined, responsibilities have shifted, or one of the original owners is ready to move on.

The issue is particularly relevant for Michigan businesses right now. A recent Michigan Economic Development Corporation report identified succession and ownership transition as a significant concern among Michigan businesses. The MEDC estimates that more than 83,000 Michigan firms are approaching an ownership transition, representing roughly one million workers.

A growing business does not necessarily need a complicated new agreement every year. But its owners should periodically ask whether the existing agreement still reflects how the business actually operates.

Who can make major decisions? What happens if the owners disagree? Can an owner sell an interest to someone outside the company? How is that interest valued? What happens if an owner dies, retires or wants to leave? And does the agreement address what happens if the business itself is sold?

These questions can seem hypothetical when everyone is getting along. They become considerably more important when circumstances change.

The same goes for ownership percentages, voting rights, and management responsibilities. An agreement written when two people were running a small company may not make sense after the business has added employees, expanded into new markets, or brought in additional owners.

For Michigan business owners, succession planning does not have to mean preparing to leave the business tomorrow. Sometimes it simply means making sure the legal documents reflect the business that exists today, rather than the one that existed several years ago.