Business "Divorce" - American Chopper Style
It's quite common in the excitement of creating a new business, to neglect to consider the demise of that business. That was the case with Orange County Choppers ("OCC"), home to the father-son motorcycle fabricators Paul Teutul Sr. and Paul Teutul Jr.; and home to The Learning Channel's hit show "American Chopper." In April 2008, Paul Sr. fired his son as an employee, only to bring him back as a contractor months later. After continued "problems," Paul Jr. chose to leave OCC to open his own fabrication shop in 2009. This decision prompted Paul Sr. to exercise his option to buyout Jr.'s 20% ownership interest in OCC, as permitted under the Operating Agreement. However, there was one glaring omission within the clause - how the parties would determine the value of Jr.'s interest.
As a result of this oversight, the matter of valuation is still under Judicial Review. A well drafted Operating Agreement should not only address matters such as buyout options and member dismissals, is should also enumerate how the outstanding shares shall be valued in the future. As one option, the parties to the Agreement could stipulate a mutually acceptable independent third party will be elected to carry out such valuation. This is particularly important in the matter of buy-sell agreement valuations for family businesses - as their may be adverse "gift tax consequences" in the event of contractual valuations which are less than the fair market value of such interests.
If you live in North Florida and have questions about Operating Agreements, Bylaws or other business and corporate transactions, please contact Wood, Atter & Wolf, P.A., a Jacksonville, Florida law firm.
