If you own a business – These clauses need to be in your will (11 Aug 10)
IF YOU OWN A BUSINESS, THESE CLAUSES NEED
TO BE IN YOUR WILL
“I realize your column is for people who own their own businesses. That’s not me, but I need your help. I am an attorney in a small Midwestern town who specializes in wills and estates. A client of mine, who owned a local franchised business, recently died, and I am trying to sort out his estate. His wife is emotionally shattered and cannot function right now out of grief. There is nothing in my client’s will to help me figure out what to do with his business, and the franchise is insisting that they will take over the business in 60 days if we can’t find someone to take the business over. What can I do in a situation like this?”
First of all, shame on this franchise, whoever they are. The death of a franchisee should never, ever be grounds for them seizing the business from a grieving widow. Sadly, many of the “death and disability of franchisee” provisions I see in franchise agreements read exactly the same as this one: the estate has an unreasonably short period of time to name a successor to take over the business (often this person needs to pay a fee to do so, which adds insult to injury), and if the estate cannot comply, the franchise seizes the business, leaving the estate with nothing. When reviewing franchise agreements for my clients, I always try to re-negotiate these provisions to make them more fair and reasonable, but obviously it’s too late to do that in this case.
What the franchise should do is contact their other franchisees in your vicinity, inform them of the situation, and have one of them manage and operate your deceased client’s business for several months until you can find a successor for your client’s business. The other franchisee should be allowed to keep 100% of the profits from your client’s business during this period as compensation for their services. Ideally, if the other franchisee’s territory shares a boundary with your client’s, the other franchisee may make you an offer to buy the business from the estate, which will spare you the burden of finding a successor.
What you should do is call the franchise, speak directly to its president or Chief Executive Officer, explain the situation, and request temporary help from another local franchisee. If the franchise refuses to do this, send them a nasty letter by certified mail letting them know you will resist any attempt on their part to seize the business “to the fullest extent of the law”. Sometimes even the threat of litigation will be enough to get the franchise’s attention and shame them into doing the right thing – after all, the whole franchise system will be watching to see how the franchise handles this situation.
Having said all that, this problem could easily have been solved if your client had put a few very simple clauses into your client’s will before he passed away. Anyone who owns a business should talk to their attorneys and at least consider putting some or all of these clauses into their next will.
Clause # 1: Give Your Executor (or Someone Else) Power to Run the Business. Your will should contain a clause giving your executor or trustee (the person legally responsible for managing your estate) broad powers to run the business until a successor or purchaser can be found. If you suspect your widow or next of kin won’t be able to handle the responsibilities, this clause should specifically give your executor or trustee the power to designate another individual (such as your estate attorney, a key employee, or a nearby franchisee) to exercise these powers. Be sure to let the individual know you have done this (and whatever you do, please DO NOT designate me J).
Clause # 2: Give Designated Successors a “Right of First Refusal” to Acquire the Business. If you want your children, or another close relative, to acquire your business, you can instruct your executor or trustee to give them the opportunity to buy the business within a certain time period after your death. This is called a “right of first refusal” – your children will have X days to purchase the business at an agreed-upon price before the business is offered for sale to anyone else or is listed with business brokers.
Clause # 3: Reference Any “Buy-Sell” Agreements. If there are partners in the business who have signed a “buy-sell” agreement (requiring them to purchase your interest upon your death), be sure to reference this agreement in your will so your executor or trustee, and your estate attorney, knows of its existence.
It isn’t fun to think about your own death, but the sooner you address this, the better. In the words of a famous