A Thriver asks how to buy out a partner and another Thriver asked, about when a business owner should purchase workers’ compensation insurance.
A Thriver in Tulsa, Oklahoma asks, “We are an S Corp with a team of 3 owners building a company on sweat equity, currently no one is drawing a salary, but when do, do we need to start paying workers comp insurance?”
DEFINITION – Workman’s Compensation Insurance – Workers’ compensation insurance is coverage for an employee’s medical expenses, lost wages, and rehabilitation services that result from a workplace injury or illness. Workers’ compensation insurance is known by many names from workman’s compensation, workers’ comp, workman’s comp, and others. Regardless of the name it’s state regulated and generally mandatory for many businesses.
DEFINITION – A Subchapter S (S Corporation) is a form of corporation that meets specific Internal Revenue Code requirements. The requirements give a corporation with 100 shareholders or fewer the benefit of incorporation while being taxed as a partnership. The corporation may pass income directly to shareholders and avoid being taxed twice. Requirements include being a domestic corporation, not having more than 100 shareholders, which includes only eligible shareholders and having only one class of stock.
NOTABLE QUOTABLE – “When you have nothing to hide you have nothing to fear. When you do the right things in the right way you have nothing to lose because you have nothing to fear.” – Zig Ziglar
NOTABLE QUOTABLE – “We had nothing to lose and everything to gain.” – Steve Jobs (The co-founder of Apple, the former CEO of PIXAR and the founder of NeXT)
A Thriver based in Las Vegas, Nevada who wants to buy his dad’s law practice asks, “How should he get his dad to proceed?…essentially, how to force a buyout to go through amicably after a proposal has already been submitted?”
OPTION #1 – Implement the dissolution or exit strategy you agreed on before starting the business. When forming a business you and your partners should agree on the events that will end partnership before starting the company.
As an example, if you were working on a real estate transaction it is very important that you create a mutually agreed upon document that states what will happen if one of the partners doesn’t want to stick around for the long-term, how you will buy out a partner out that is not performing their agreed upon role in the business, what specific actions could trigger and buyout, etc.
OPTION #2 – The sneak attack
OPTION #3 – Hold your minority partner accountable to doing what they don’t want to do, but what they agreed to do until they quit.
You have questions. America’s number one business coach has answers. It’s your brought up from Minnesota. Here’s another edition of ask clay, anything on the thrive time business coach radio show?
Yes. Now thrive nation, typically Wes Carter, my attorney of choice
tourney who is a partner with winters and King of the law firm that represents pastor TD Jakes, pastor Craig Rochelle, pastor Joyce Meyer. Uh, they’ve represented pastor Joel Olsteen, etc. He joins us on the show to answer our legal questions, however it, Wes was very busy today doing a great many things on behalf of his legal clients at winter’s king.com. And so I have questions from the thrive nation that I feel very qualified to answer because I answer these questions on a daily basis. And although I am not an attorney, I do smell like one and I am licensed to drive a vehicle. Well that if math that is very impressive. So anything that I, uh, any feedback I give you, any advice to give you, I would encourage you to reach out to an attorney that you can trust to verify that I have not yet lost my mind.
Although I have gotten very
driver asks the question. They say, hey, we are an s Corp. What had happened was I thought we were going to be talking about legal advice and now we’re talking about an escort service. What is, what is this fellow about? Oh, s Corp, an s corporation with a team of three owners building a company on sweat equity. Currently, no one is drawing a salary. I sway if you want me to draw a salary, you want me to draw a tree? You want me to dry your mother? I could draw any of these things. I’m like, boom. I just draw. I don’t know how I do it. I just do a, wait, where’s my freaking Bob Walker? Bob Ross. Soundtracking wait, where was it?
Pull it through. The parrot is nailing it. Come on Bob. Wiggle it. Please share it with just bop touching the canvas. There we go. He’s just a corner. You just use the corn on corn or the Kona Kona and began pushing, making them bristles been slightly downward bull. See they’re wicked awesome. Look at that and then a nice little [inaudible] unbelievable lives right here in this pressure. At the end is Brexit just well you have to do is sort of push him out. Just drowning
Now we’re talking about, we’re talking about actually drawing a salary from a business, but the question is when we do start drawing an actual salary, do we need to actually start paying for workman’s comp insurance when the only employees are just us? Three partners.
start off by breaking down the definition of Worker’s compensation insurance. You’ll see worker’s compensation insurance is a, is a coverage. It’s an insurance coverage for an employee’s medical expenses, potentially lost wages or like rehabilitation services that result from a workplace illness injury, something that happens that’s not good. Workers Compensation Insurance is known by many names from Workman’s compensation to Workman’s comp to I’m sure a super lazy person might call it WC, but the point is workman’s comp is a type of insurance that is regulated at a state level, so regardless of its name, it’s a state regulated type of insurance, which means that from state to state, depending upon what state you’re in, there will be certain regulations. Generally, generally speaking, not a specific for the state of Texas or the state of Alaska or the state of Florida. Generally speaking, Workman’s comp is mandatory for many businesses.
So what you have to do is you have to start on a state level and say, do I have to have this kind of insurance? Now, if you are a startup business, this is the kind of advice I would give you that I know Wes Carter would not give you because he is an attorney and not an entrepreneur guy like myself. You see doctors, Eleanor and I, we’ve built 13 multimillion dollar businesses and all of the businesses have not failed. Think about that for a second. Think about that for a second. Forbes magazine states that 90% of startups fail, which means they quit or they filed bankruptcy. But think about that for a second. I have started DJ connection.com I’ve started elephant in the room, the men’s grooming lounge. I have started epic photos.com Z has started a to z medical. He has started doctor Robert Zoellner and associates.
He has invested heavily in region pink. He started the z 66 auto auction. We could go on and on back and forth talking about the companies we’ve started and they all have not failed. So the question is, are we geniuses credibly? Upon further research, you are not geniuses, right? Cause I’ve taken Algebra three times. I took my act three times. So if I am not a genius, how is it possible that I don’t fail? I know how to start a company in the way. Maybe somebody out there as a good, a good singer, good at playing the guitar, good at singing. Maybe you’re listening right now and you’re a great singer, you’re a great skier, you know a downhill snow skier, you’re a great snowboarder. Maybe you are a great whatever you are. I am not great at any of those things. But starting a business is something that’s been intuitive and easy for me and I’ve been self employed in large parts since the age of 16 so this is year 22 of being self employed.
Think about that for a second. I’ve been self employed for 22 years, so when I gave you this feedback, just take note of it. Talk to your local attorney, but I want you to take note of it. Steve Jobs, the former cofounder of apple, the former CEO of Pixar and the founder of next, he writes, we had nothing to lose when starting apple and everything to gain zig Ziglar, the self help guru rights when you have nothing to hide, you have nothing to fear. When you do the right things and the right way, you have nothing to lose because you have nothing to fear. What are we talking about? What we’re talking about is that when you do things the right way, I would hope that you and your three partners would never file a workman’s comp lawsuit against each other. I would hope if you’re three founding partners and you’re all going in on a company together, I would hope that none of you would slip and fall and look for an excuse, uh, and look for a reason, uh, to, to get out of the how to buy out a partner ship or to make a quick buck or to get ahead real quick or to get rich quick.
I would hope that no, none of your partners are scammers schemers liars and get rich clickers. But if they are, then one of those three people in your midst, we’ll probably file a workman’s comp claim at some point and they will ask for money. And if you don’t have workman’s comp, you are screwed. You’re screwed.
I know on a popular sound clip or a popular idea, but there are people that do that. There are litigious people and you know them. And if you are partnered with him, you have to know, I know many people who aren’t even 30 years old who’ve sued multiple companies for wrongful termination. Did they win? No, but that’s what they do. That’s their whole game. They want to play the victim card. So if you are starting a company with people that you can trust and aren’t going to file lawsuits called Workman’s comp because they are a ridiculous human looking for the victim mentality and the pay out from some third part of that quote unquote owes them something, then um, you know, I wouldn’t really think too much about workman’s comp until I sold a 100 somethings. You have to beat the way insurance works. Insurance was designed to protect the assets that you’ve earned.
Insurance was created so that you can protect the assets that you have acquired, Aka if you’ve earned money, earned assets, earn something of value, you might want to protect it, right? You might want to put it in a safe. If you were back in the time of kings and Queens and Lords and vassals, the feudal society, peasants and that sort of thing, then what you would do is one, you would probably want to protect your assets by building a wall around your castle. But if you didn’t have anything worth protecting, I think it’s probably a stupid idea to protect nothing. So again, insurance exists. You can have a bad day and not a what a bad life, right? You want to buy insurance so you have a bad day and not a bad life. Say it with me. Now you want to buy insurance so you can have a bad day and not a bad life.
So what you want to do is you’re going to want to make sure that you have the insurance that will protect you in the, in the event that you could lose something. But if you have nothing, it makes zero sense to spin a large percentage of your startup costs. Investing in something that doesn’t, uh, help you grow the company and it’s worth nothing. It would make zero sense to spend a large percentage of your income. And time to really massive castle to protect nothing. If you were a peasant, it makes zero sense. If you’re an entrepreneurship and you have no assets to speak of, to spend a lot of money on insurance, protecting things that you don’t have, hopefully that answers your questions. Now, if you’re out there today and you’re saying, hey, you know what? I want to talk to a real attorney to get real legal advice. Then go to winters king.com that’s my attorney of choice. Now we have another thriver who writes, this is a thriver based in Las Vegas, Nevada, who wants to buy his dad’s law practice and he asks, let me queue up my music here.
How should I proceed with my dad to buy him out of the law practice? Essentially, how do I force out my dad from a law firm? How do I buy out my dad from a law firm? How do I make the deal happen? Well, there’s option one, two and three. I think option one is preferable and option two is sort of a backup plan. Option three is like, oh, so option one you want to implement to execute, to utilize your dissolution or exit strategy that you should have previously agreed on before starting the business. So when forming a business, you and your partners should agree on the events that will end the partnership before starting the company. So you would say, hey, if either one of us has an extramarital affair as an example, that’s something I’m passionate about, then you’re immediately kicked out of the business.
If either one of us, some of us, most of us, if all of us, if any of us has a run in with the law and we commit a felony, then we’re immediately kicked out of the partnership if one of us, et cetera. So you’d want to have an agreement in place that also states not nefarious situations where you might say in the event that one of the partners wants to buy out, let me, let me get into my lawyer voice. If any of the partners wants to buy out another ward of the partners, then they can buy out the partner at an agreed price, 20% mold. And they’ve invested in the company or if everyone has done, if I want to sound smarter, I might want to use like a European. So, and the event that one of our partners decides that they would like to exit the business, then what we would like to do is we would like to provide them a mutually beneficial exit strategy where one party, the majority partner or could buy out said, I know what he partner for.
Uh, the initial investment plus 20% of their investment or something. Just have an agreement. Get something in writing before you start the partnership. Because of you don’t do that. Your head’s going to explode when the bad things happen. You can’t make an agreement with the bad things happen when the bad things happen, the bad things have already happened. And so now it’s really hard to pick logically cause we’re screaming at each other. So you gotta make sure you get these legal agreements in place before taking over the church, before buying the business, before partnering with Your Father, be partnering with Your Dad, your son before forming a franchise before, whatever. Just get those agreements in place so that way you can execute them. If in the event, bad things happen. Option number two from our Home Office right here in the man cave studios. It’s the sneak attack. Just show up at the desk of your dad, at the Office of your dad in the suite of your dad and say, Dad, you know what? I really want to buy you out. We’ve talked about it, we’ve agreed on it. We’ve had discussion. So I’m not really gonna leave your office until you sign it. And you know that’s gonna feel are not super
positive. Gonna feel a little awkward,
but you just sit down. Here’s the deal. I don’t know. No big deal, no pressure, but I’m not gonna leave until you sign the agreement. Now that deal is, are not positive, not the super move, not the, the number one position, not the number one, uh, encouraged to move. But at the end of the day, if somebody knows that you’re trying to get them to sign an agreement and they won’t do it, it usually has nothing to do with them not having the time. Because to sign a piece of paper, it takes how much time? I don’t know. Let me, let me try to sign a piece of paper or something cause she’d pay for it. Let me sign it real quick here. And then I did my last name. I really screwed that up. Let me try again. That’s my first name. And then let me do my last name.
I was like, what, two seconds, maybe three seconds. I mean, somebody says, I can’t find the time. If somebody says they can’t find the time to sign an agreement, that’s bs, man. Uh, they say, why? I just need to look it over again and it’s been months. I just need to look it over again. I want to sign it, but I just got to look it over again. You know, that’s bs. So you’ve got to do the sneak attack and you show up boat and you say, Hey, I would like to get an agreement. And I, and I’m totally focused on, I’m ready to go. And no big deal, no pressure, but I’m not gonna leave until we get the agreement. And why is that so powerful? Because it’s a sneak attack. It’s a move. You know, when you’ve, you’ve, you’ve talked about it previously, don’t call them and say, is there any way that we could talk?
Just pull them aside real quick and say, Hey, let’s touch base. I have, I want to pick your brain. Boom. And then just say we’re not leaving until we have an agreement. And, uh, I have found typically you can leave with an agreement half the time. Now option number three, that is where you want to hold your minority partner accountable for doing what they don’t want to do, but they agreed to do until they quit. Now, I’ve done this move numerous times and I’m not saying this is the preferable move, but if you’ve clearly agreed, um, in a partnership that you will do this and they will do that and are clearly dropping the ball on a daily basis. Like, as an example, I had a partners back in the day who we’d have a weekly meeting like at two o’clock on, I’m making up the day, but like two o’clock on a Tuesday and our team meeting was two o’clock on a Tuesday.
That’s when it was. And I told them, if, hey, listen here, if you guys cannot be at the meeting on time, two o’clock on Tuesday, uh, I’m not gonna let you in the meeting so you can show up on time. But if you show up late, even by one minute, I’m going to shut the door. You can’t come in, man. You would have thought that I had insulted their baby. I had slapped her mother’s, you would’ve thought that I would have been encouraging. Uh, you know, Hitlerism Nazi as immune a thought that I’m like, hey guys, here’s a good book to read. Why don’t you guys check out mine comp? I mean, you would have thought that I was endorsing some really terrible stuff, but I wasn’t. All I was saying is if you can’t be on time, don’t show up. And then one by one I started holding them accountable for things they should do, like hit deadlines, like show up on time for meetings and I had the majority share or stock in the company and kept doing this, holding them accountable to being on time, shocking as it may be for some people to hold your partners accountable to being on time.
And I held them accountable to doing work and stuff like hitting their freaking deadlines and they hated it. And so one by one they all wanted to quit and that was awesome. That was awesome because then I went back to my agreement that I had going into it, my dissolution or exit strategy agreement and I said, well, if you went out, this is how we do it. And they did one out and this is how they did it. And that is why I have forced people to quit over time. Again, if you can’t show up on time and you can’t do your job, I just hold you accountable. That is the three options that I am aware of when it comes to, uh, forcing a partner, a partner out of the business, whether it’s family, friend, whatever. That’s how you do it. So hopefully that answers your question about how to buy out a partner and when one should purchase worker’s comp insurance. My name is Clay Clark. If you’re out there looking for an attorney and go to winters king.com if you’re out there looking for business coach advice, could have thrive time show.com now, without any further ado, we’d like to it each and every show with the boots. Three two, one, boom.