Before you start a new b/d or RIA — before you sign a lease or write a check — you must consider the Dreaded Ds: Death, Disability, Disqualification and Divorce. Here are some important things to keep in mind.


No one likes to contemplate his or her death, which is why too many new business owners fail to consider the “what if” of their demise and that of their partners. That failure can have devastating repercussions on your surviving business or your estate.

When my clients propose starting a BD or RIA, I ask them, “What if you drop dead?” Have you looked into Key Man insurance? What about life insurance? Following the death of an investor in the business, will the company purchase the interest or will there be a right-of-first-refusal for a specific partner? How will an investor's interest in the b/d orRIA be calculated? What if the company lacks the funds to pay that investor's estate in a lump-sum?


The car crash only put you in the hospital for a month, but you won't be able to return to the office for three and you might not ever get back to work. Do you expect your partners to continue to pay you a full draw or salary? What if you were the major source of income for the b/d or RIA? At what point should a “disability” be considered a “mandatory retirement?”


Regulators have decided to bar you from the industry. You can't be paid commissions because you're statutorily disqualified and not registered. You can't even step foot on the premises. Maybe the regulators will let you keep a passive ownership interest, but what if your partners say they want you out?

At what point should your absence be considered a “for cause” reason to throw you out of the firm? Should the cost of hiring another producer for the duration of your suspension be deducted from your capital account?


Your b/d or RIA is doing fine; it's your marriage that's a mess. Your spouse may be entitled to half of your interest in the business. You can't even stand to be on the same continent with the former love or your life, much less in the same branch office. Or let's say that the obnoxious spouse of your partner is soon to become a 25 percent owner in the firm. What can you do to ensure that ownership interests are not transferred under these circumstances?

Shareholder Agreement/Buy-Sell Agreement

After you've contemplated the above Dreaded Ds, you should draw up a punch list describing what you would like to see happen in each of these scenarios, and have a lawyer draft documents accordingly. The two key documents that will typically be prepared by your lawyer are a shareholder agreement and a buy-sell agreement. While the final, executed agreements may not deal with all future developments, they better address most, because you'll be stuck with them if you and your partners can't agree on future amendments.

Shareholder Agreement

A key provision of the shareholder agreement should be to restrict the transfer of ownership. Requiring a departing investor to sell only to the company or to agree to a right-of-first-refusal are only two typical restrictions. Keep in mind, whatever you agree to today, you or your firm will need funding to pay for tomorrow.

Another key function of a shareholder agreement is to contain litigation costs and limit the washing of your b/d's or RIA's dirty laundry in public. If a dispute occurs at the b/d level, then you may be subject to mandatory intra-industry arbitration. However, if you are a partner in an RIA, then you may wish to make provisions for a specific arbitration forum in case of a dispute. Finally, you may want to institute a cooling-off period before any formal litigation/arbitration can be filed.

Additionally, a shareholder agreement often defines what constitutes the right of the b/d or RIA to consider a partner as terminated, retired or disabled. Those conditions may impose severe financial hardships and should be carefully considered.

Buy-Sell Agreement

Finally, the buy-sell agreement will formalize the terms for how an owner can sell his or her shares, and how the buying counter-party (another owner or the company) can complete the transaction. Discuss this document with your lawyer and accountant, as there are often personal and entity tax consequences.

If you draw up these documents with the dreaded Ds in mind, you may be able to keep disaster from knocking down your door.

Writer's BIO: Bill Singer practices law at Stark & Stark, and is the publisher of