Different Goals, Shared Success: Preserving Value, Flexibility, and Relationships Through Strategic Ownership Restructuring
By Luis Fiallos, Associate Attorney
Last month, I found myself staring at a legal pad covered with arrows, LLC names, family names, and pieces of commercial real estate. To anyone walking by my office, it probably looked like I was trying to solve a conspiracy theory. However, the owners had a remarkably simple problem. Nobody was fighting. Nobody was threatening to sue anyone. The owners simply looked at one another and said:
"We've had a great run together, but we're not all headed in the same direction anymore."
As a real estate and business attorney, I have learned that some of the most challenging business issues arise when nothing has gone wrong at all. Families grow, investment goals change, retirement gets closer, and opportunities emerge. What made perfect sense twenty years ago may not make as much sense today. The good news? Not every ownership separation has to become a dispute. And, not every business divorce requires selling everything. Sometimes the best solution is simply building a structure that allows everyone to move forward with confidence.
1. The Problem Nobody Talks About
Most real estate partnerships and family-owned investment companies begin with optimism. Everyone has a shared vision, is working toward the same goal, and agrees on virtually every major decision. Then time does what time always does. One owner wants to hold the property for another decade. Another wants liquidity or wants out. Someone starts thinking about retirement. Someone else starts thinking about growth. None of these goals are wrong. The challenge is that many ownership structures were designed for yesterday's goals, not tomorrow's.
Eventually, someone asks the question that changes everything: "Do we still want the same things?" When the answer is "not exactly," that is usually when our office phone rings.
2. Separation Doesn't Always Mean Selling
When many people think about separating ownership interests, they assume there are only two choices: stay together or sell everything. In reality, there is often a middle ground. Depending on the circumstances, there may be opportunities to reorganize ownership structures, realign business entities, update governance, and create clearer separation between ownership groups while preserving valuable assets.
One restructuring strategy that can be particularly effective for multiple families or ownership groups involves separating ownership through a tenant-in-common structure. In certain situations, an existing entity can convey undivided ownership interests in real estate to newly created family-owned entities. Doing so can preserve each family’s proportionate economic interest in the underlying property while allowing for greater independence in decision-making. And, importantly, that independence does not necessarily require an immediate sale of the business’ assets.
Every situation, of course, is unique and requires separate legal, tax, and business analysis. But in the right circumstances, this type of structure may provide a practical roadmap when owners want to move in different directions while maintaining their ownership interests. In the matter that inspired this article, the restructuring involved ownership transfers, governance changes, entity restructuring, real estate conveyances, and amendments to governing documents designed to better align future control with the parties’ respective ownership interests.
As I already mentioned, every situation is different. But one lesson remains consistent: Business owners often have more options than they initially believed. Some of the most rewarding matters in my practice involve helping clients discover solutions they did not realize were available.
3. The Real Goal Isn't Separation. It's Alignment.
More often than not, clients have an alignment problem, not an ownership problem. The ownership structure simply has not kept pace with their lives, their goals, or their plans for the future.
One of the biggest misconceptions about restructuring is that it is primarily about moving assets. That is not necessarily the case. At its core, restructuring is about aligning ownership with decision-making. Think about it this way. It is hard to drive a car when four people are fighting over the steering wheel. The same principle applies to businesses. When ownership groups have different long-term objectives, a structure that requires everyone to make every significant decision together can become increasingly difficult to manage.
Good restructuring work helps answer questions like:
Who controls what?
Who makes decisions?
What happens if someone wants out?
How will future disputes be resolved?
What happens when the next generation gets involved?
The most successful transactions I have worked on do not simply move ownership around. As one of the founding members of this Firm has told me several times, the most successful transactions actually create clarity. And clarity is one of the most valuable assets a business can own.
4. The Documents Most People Never Think About
One thing I love about practicing business and real estate law is that clients often see the result, but not the machinery behind it. Most people think the important document in an internal membership restructuring deal is the deed. Lawyers know the deed is usually just the beginning.
Behind virtually every successful ownership restructuring sits an entire collection of documents working together:
Ownership transfer documents;
Governance approvals;
Manager resignations and appointments;
Operating agreement revisions;
Entity records;
Authority resolutions; and
Real estate conveyance documents for restructuring deals involving real property.
This is obviously a non-exhaustive list. Every deal is different and may require additional documentation to be prepared.
I often tell clients that legal documents are like an orchestra. If one instrument is playing a different song than the rest, everybody notices. The same thing happens when ownership changes but governance does not. Or when management changes but company records do not. Or when a deed changes but the operating agreement never gets updated. Good legal planning makes sure every document is telling the same story.
5. The Most Important Document Most Owners Never Read
Now I am going to risk offending operating agreements everywhere. Many business owners sign an operating agreement and then immediately place it in a digital folder, or a “cloud,” where it quietly remains untouched for the next fifteen years. Then one day someone calls a lawyer and says:
"We changed ownership three times, brought in family members, bought new property, and removed a manager. Is our operating agreement still okay?"
The answer is usually the same: "Let's take a look." Operating agreements are living documents. Or at least they should be. They govern ownership rights, management authority, transfer restrictions, dispute-resolution procedures, succession issues, and countless other matters that business owners rarely think about until they absolutely have to. One of the easiest ways to avoid future problems is to periodically review whether your governing documents still reflect reality. Why? Because reality tends to change.
6. Building Flexibility for the Future
One of my favorite parts of this type of planning is that it is not entirely about today's problem. It is about tomorrow's opportunities. Maybe someone wants to retire soon. Maybe there is a pending business sale. Owners often want flexibility to evaluate future sales, estate planning objectives, financing opportunities, investment strategies, succession plans, or other long-term goals.
In the matter that inspired this article, the restructuring documents reflected a desire to provide the ownership groups with greater independence in evaluating future ownership and disposition decisions. Importantly, no legal structure guarantees any particular tax result or future planning outcome. Questions involving tax consequences, exchange strategies, and other tax-related planning are highly fact-specific and should always be evaluated with qualified tax professionals. What lawyers can do is help clients build structures that may provide greater flexibility as those conversations take place. And in my experience, flexibility is rarely a bad thing.
7. Relationships Are Assets, Too
Here is the lesson I took away from this matter. Sometimes the greatest success is not winning a lawsuit. It is certainly not closing a sale. It is not even negotiating the best deal. Sometimes the biggest victory is helping good people solve a complicated problem without becoming adversaries. Business relationships have value. Family relationships have value. Goodwill of a business has value. And when ownership structures begin to outlive their usefulness, thoughtful planning can often preserve those relationships while creating a path forward.
Not every business separation needs to become a fight. Sometimes the best legal work happens before anyone starts fighting at all.
If you would like to discuss or receive more information on this content, please contact us. The attorneys at Boodell & Domanskis are available to answer your questions about any general issues concerning your business.
Disclaimer: This article is provided for informational purposes only and does not constitute legal, tax, or financial advice. Reading this article does not create an attorney-client relationship. Every transaction is unique, and property owners should consult qualified legal, tax, and financial professionals regarding their specific circumstances. Certain facts described in this article have been generalized, condensed, combined, or modified to protect client confidentiality.
