Estate Planning for Small Business Owners: Securing Critical Corporate Documents

For small business owners, an important part of the estate planning process is making sure you have your key corporate documents – such as Operating Agreements, Shareholder Agreements, Partnership Agreements, and Employee contracts – organized and in a location where your Trustee or Personal Representative can find them.  This ensures continuity in the business if something unexpected happens and also provides critical documentation of the amount and value of your ownership interest.

One of my clients is unfortunately in the process of learning this lesson the hard way.  Ann’s father Frank died two years ago in California without a Will or Trust.  Without a Trust, Ann’s father’s estate has to go through probate, which in California is a very expensive process.  The bigger problem for Ann and her brother, however, involves Holy Cannoli, a bakery her father owned with a good friend, Sally. 

After Frank’s death, Ann and her brother spent hours looking through Frank’s papers trying to figure out how much of Holy Cannoli Frank owned.  Ann thought her father owned 60% of the bakery, but Ann’s brother thought their father owned only 25%.  Ann found some documents referring to an Operating Agreement for Holy Cannoli – which would list each owner’s interest – but she was unable to find the Operating Agreement itself.

Ann contacted Frank’s  business partner Sally and asked her for a copy of Holy Cannoli’s Operating Agreement.  At first, Sally said she didn’t remember an Operating Agreement.  When Ann told her that she’d found several documents referencing the Operating Agreement, Sally changed her tune and said that she would look for the document in her files.  Months passed and Sally did not produce an Operating Agreement. 

After repeated calls, Sally suggested Ann contact Sally’s attorney to see if he had a copy of the Operating Agreement.  The attorney, after waiting several weeks to respond to Ann’s email, said that he would get back to her after tax season. Tax season came and went, however, and Ann and her brother still do not have an Operating Agreement and still do not know how much of Holy Cannoli belonged to their father.  In addition, Sally has not provided Ann and her brother with access to the Holy Cannoli books nor have they been paid any of the profits since Frank died.  Sally claims she is keeping their “share” in a separate account, but Ann has received no information about how much their “share” is or where this alleged account is located. 

Sally, meanwhile, has offered to “settle” the issue by paying Ann and her brother $200,000 in exchange for Frank’s interest.  Ann’s brother is tired of the whole thing and wants to settle.  Ann, however, thinks it is ridiculous to “settle” when they don’t know how much of Holy Cannoli Frank owned!  Ann and her brother are currently deciding how to proceed.  Frank could have avoided all of this heartache and wasted time by giving Ann and her brother a copy of the Operating Agreement, or, at a minimum, telling them where to locate this critical document.

​Whether you own a bakery, a family business, a rental property, or a large corporation, take the time now to make sure your key corporate documents are organized and someone – other than you and your business partners – knows where to find them.