By Adam Atlas
Attorney at Law
Succession is not a particularly sexy topic. Nonetheless, a number of my ISO and agent clients have asked what would happen to their residuals if they were to die or be permanently disabled. This is an important question that should be addressed legally at various levels.
This article highlights key structures, clauses and documents that should be addressed when planning the succession of your merchant acquiring business.
Laws vary state to state. Framing the succession of your legal business rights and obligations should be done for you by a local lawyer who is experienced in this type of planning.
Subject to the advice of your local attorney, it is helpful to have a written will to diminish the risk of ambiguity or contest regarding who should inherit each of your assets, including the shares, if any, you own in a merchant acquiring business.
If you operate your merchant services business in your own name, without forming a corporation, your heirs may be able to inherit your rights and obligations under the agent agreement - subject to the agreement's terms and local succession law. However, the entity paying your residuals may determine your agreement is valid for you only, not for your heirs.
Discuss this with your ISO. And make sure the wording of both your agent agreement and your will address this issue. Passing along title to shares in a corporation is simpler than passing along contractual rights and obligations because a company is a distinct legal entity.
Thus, assuming there is no clause to the contrary in your agent or ISO agreement, should you, the owner of an incorporated merchant acquiring business die, and should your heirs then pass their shares on to someone else, that party should, theoretically, be able to run the business just as you are doing now.
Processors do deals with ISOs partly on the basis of the financial status of the owners of the ISOs. When ownership changes, the basis of an ISO's underwriting also changes.
Your will and your ISO agreement may permit an heir to take over your business, but if the processor deems the heir does not have the resources to maintain the ISO's sponsorship, it will be hard to keep the business going with that processor.
When thinking about a successor, think not just of whether the person deserves to own your business, but also whether the individual has the financial stability to preserve the business's registration with the processor.
It's always sad to see an ISO widow or widower who inherits a merchant acquiring business but lacks the requisite experience and knowledge to service the accounts and maintain the residuals that, at first, seem like a great retirement income.
When you consider a successor for your business, you are not giving your heir much unless you also convey the knowledge of how to run your business - including, most importantly, how to service merchants.
Your heir should also be familiar with your network of agents, suppliers and processors so he or she (or they) have people to talk to when questions arise. Your heir should also know where the threats are to the business. For example, if your heir slacks off, who is most likely to solicit the merchants and cause attrition in the portfolio?
Kings, emperors and presidents throughout history have had great difficulty deciding when to step down and let someone else take over. The decision of when to sell is mostly a business decision. It's best to sell when you need both the equity (money) in your business and the business is at a point where it is worth a lot.
As a way of giving back to the community I serve, I provide free legal advice to ISO widows and widowers. The most common duty I have in this part of my practice is helping to ensure that a widow is paid for the merchants her late husband brought to a processor.
Generally, most processors are cooperative in this respect. But, as you know already, there are pirates in our industry who make it difficult to preserve value for widows who are, perhaps, not as aggressive or knowledgeable in the merchant services business as their late husbands were.
I wish you all long, healthy, prosperous lives. Taking into account some of the notes above may help carry forth the fruits of your success to the next generation.
In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If you require legal advice or other expert assistance, seek the services of a competent professional. For further information on this article, e-mail Adam Atlas, Attorney at Law, at email@example.com or call him at 514-842-0886.
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