AboutTimmy Chou Expertise I am a experienced Mediator and a partner in a management consulting firm. As a mediator I work as a third-party neutral and specialize in partnership/shareholder disputes, management/labor issues, company culture difficulties, and family-owned business problems. I can help describe why alternative dispute resolution may be a good choice for you. As an experienced management consultant I may be able to offer creative ideas to help resolve your organizational and business problems and disputes. "If you say conflict, I say opportunity".
Question I have worked for my father's business for the past 15 years. He just passed away suddenly. I always filed a schedule C. The accountant said to form a S corp with my mother. She never worked in the business and wanted a 60/40 split. I said no, and she stated 50/50. I feel there is no incentive to me unless the split is different. I have worked out of my home and my Dad out of his, he leaving the business to her. I am the only one that can run this business at this time. What is the protocol for something like this. Any input is apppreciated.
Answer Thank you for your question!
Mediators act as neutral third parties to disputes and never "get involved" in judging the merits of conflict, but merely use special techniques to help the parties decide how to negotiate their own settlement.
I am not a lawyer, nor can I mediate the issue with just you alone but I can respond to your question from my mediation and business consulting experience. Your case is one that is very amenable to a mediated settlement.
There is every reason to expect that you can solve this issue as you all have an interest in preserving your relationships and also in preventing costly litigation.
You are a prime candidate for mediation and I would urge you to seek out a mediator. Each party can tell their side in a controlled environment, facilitated by the mediator. The mediator will bring you together and lay out the rules of the mediation. Then, each side will tell their story. The mediator will then use his or her training to work on solutions with you. The mediator may separate you and work with each of you separately for awhile before bringing you together again. None of the content of the mediation can be used in court and the result is not binding. You can stop the mediation at any time, or recess the meeting and resume it later. In short, you'll have everything to gain and nothing to lose.
Of course, you always have the option of shutting down the process legally--and it is likely you would prevail after an expensive process--but an unnecessary price will be paid by all.
You can find a mediator by going here:
www.acrnet.org
or perhaps your state has a licensing section for mediators that will list qualified persons. Your attorney (who you should leave home) may know someone good as well.
Give it a shot, and try to be as calm and matter-of-fact with your mother as possible now. Every effort must be made to cultivated an environment conducive to working out the details constructively and high emotions can be counter-productive.
OK, now that I have made my sales pitch for mediation, I can at least lay out some of the issues for you as I see them. As I said, I am not a lawyer and so this may not play in your state.
There are a couple of different pieces of background to understand. First, it sounds like you have operated the business like a joint-proprietorship. If I read it right, you each worked in the business, and then you each filled out a separate Schedule C for your portions of the business. In a strict sense, you each did not have single business that you each owned part of, but you each owned separate businesses -- even though you worked together. This would mean that your mother would not technically own any of your business. (obviously there is much missing here -- did you have the same customers, joint work on the same jobs, did you get your own customers, did the business exist prior to your getting involved, etc.)
All this said, you may have worked together under a single business name and have each contributed to building a "name and reputation" that has been successful -- an obvious joint investment.
Your mother would have the right to continue to operate the business -- as she is the heir of her husband's estate, but she would have to hire someone to do it. I think it would be tough for her to prevent you from continuing to work under the name as well as you continued your side.
Obviously she may have been relying on your father's income from this enterprise and is seeking a way to maintain her income.
Here is how I would likely be advising you if you were to retain me:
1. Analyze the performance of the business during its life. How much gross revenue, how much expense. Chart out the net cash flow of the business (and each of your contributions). (Net cash flow is the cash generated BEFORE any distributions to each of you) Come up with an annual average.
2. Figure out some fair way to determine how much cash generation you were responsible for personally. Annual average.
3. Identify the joint assets (joint name, joint equipment, phone numbers, trademarks, advertising) Value these. (fair market value for anything you can sell, cost of replacement for any intellectual property. e.g. what would it cost to establish a name that is known by X customers--this could be very valuable)
4. Add together the Average annual net cash flow plus the asset value. Now subtract the annual cost (with the same benefits) to hire two people to replace you and your father and produce the same income.
5. Make any sensible adjustments. This is the "value" of the business from an "investor's" point of view.
6. Make a judgment about your own percentage of contribution to establishing the joint business value based on percentage of contribution, time in the business, etc.
7. Divide the business value to determine your father's "equity" in the business. I would argue that take over the business you should "buy out" your father's equity from your mother. You should pay this out to your mother over time with interest. I would argue that unless you want to, it will be a problem for you to run this by yourself and just pay your mother when she is not contributing to the business.
These are some ideas. Feel free to follow up with additional questions.
For your information, the pros and cons of the types of dispute resolution methods follows.
GOOD LUCK!
Arbitration, Mediation, and Litigation
Arbitration: the referral of a dispute to one or more impartial persons for final and binding determination outside of the judicial system
Benefits of Arbitration:
Confidential, no public record
Limited exchange of documentation, information
Quick, don't have to wait for a court date
Arbitrators have expertise in the subject matter and are trained in conflict resolution
Cheaper than litigation
Preserves business relationships
Negatives of Arbitration
It's a compromise, no 0 winner
Complex arbitration can be costly
If not satisfied, may litigate the arbitration procedure
Poor results with an unskilled arbitrator
Both parties must agree to cooperate in the process
Mediation: the process by which parties submit their dispute to a neutral third party (the mediator) who works with the parties to reach a settlement of their dispute.
Benefits of Mediation:
Neutral mediator can objectively suggest alternatives not considered before
Parties are directly engaged in negotiating the settlement
Can be quicker than litigation
Less costly than litigation
Preserves business relationships
85 of American Arbitration Association cases mediated find successful solutions
Negatives of Mediation
may not reach a binding decision
unskilled mediator
Litigation: using the judicial system to resolve disputes
Benefits of litigation:
a clear winner and loser
uses a prescribed set of procedures
more predictable outcomes
is final
Negatives of Litigation:
waiting for court dates can do more hare
usually more expensive than mediation and arbitration
part of the public record
