Buying into fractional ownership

[Bill]

A poor or absent agreement with good partners is better than a 50 Page lawyered tomb with one bad partner.

The agreement does very little for you if things really go sideways.

Agree, I have a copy of our agreement somewhere, but I haven't looked at it in years. No need, everyone is stand up, and that's all that counts. It helps that we also socialize some, we all hang out on the lake together in the summer, etc.

 

[Kenny Phillips]

A poor or absent agreement with good partners is better than a 50 Page lawyered tomb with one bad partner.

The agreement does very little for you if things really go sideways. With the money at stake for an older trainer, it's not even worth to litigate if someone doesn't keep up with their obligations.

It's a bit like a pre-nup. No prenup with the right spouse is infinitely better than the opposite.

I saw one agreement with a clause that reduces equity if one doesn't pay their share, even down to the point of exclusion from the partnership.

 

[weilke]

I saw one agreement with a clause that reduces equity if one doesn't pay their share, even down to the point of exclusion from the partnership.

Intuitively that would be the way to do it. Depending on the state, there may be barriers to eating the face value of stock in a corporation. Probably easier in a LLC.

 

[bradg33]

Agree, I have a copy of our agreement somewhere, but I haven't looked at it in years. No need, everyone is stand up, and that's all that counts. It helps that we also socialize some, we all hang out on the lake together in the summer, etc.

Easier to not have an agreement, or not really worry about it, when you all started together. Totally different for a "stranger" coming into an established partnership.

 

[SkyDog58]

Easier to not have an agreement, or not really worry about it, when you all started together. Totally different for a "stranger" coming into an established partnership.

And that same thought was the impetus for my “run” comment. If I was forming a new partnership with some friends, I might be more willing to go without a formal legal document or operating rules. However if I was joining a going concern with strangers or people I just met, there is no way that I’d do so. And it seemed to me that this was the situation the OP is in.

 

[weilke]

And that same thought was the impetus for my “run” comment. If I was forming a new partnership with some friends, I might be more willing to go without a formal legal document or operating rules. However if I was joining a going concern with strangers or people I just met, there is no way that I’d do so. And it seemed to me that this was the situation the OP is in.

Its allways a leap of faith to enter into a co-ownership. Replacing 1/5 in an existing setup it' is more important to know how the thing is run day to day than the underlying paperwork.

While both of my partnerships have operating agreements and bylaws respectively, it's my trust in the fact that we are not out to screw each other over that allowed me to write a check for the equity, not the piece of paper (which in both cases someone had to track down as nobody really remembered where they had their copy).

 

[ColoPilot]

Even if everyone in the partnership is best friends and gets along great, I think a well thought-out operating agreement is still important for handling the "what-if" scenarios. Like when someone wants to sell or loses a medical or wants to give their share to their no-good brother-in-law -- an agreement sets out the expectations on how that will be handled. Otherwise everyone has a different idea on what is "fair" for them and it can go downhill fast.

 

[weilke]

Even if everyone in the partnership is best friends and gets along great, I think a well thought-out operating agreement is still important for handling the "what-if" scenarios. Like when someone wants to sell or loses a medical or wants to give their share to their no-good brother-in-law -- an agreement sets out the expectations on how that will be handled. Otherwise everyone has a different idea on what is "fair" for them and it can go downhill fast.

Agree on the agreement ;-)

Just make sure it actually reflects what people doing.