Contact UsMenlo Park Business Attorney Warns, “Business Partners Need an Exit Strategy, Too”
Like people who are planning a marriage, people who decide to go into business together are usually pretty optimistic about their future. And like people getting married, people going into business together should consider the possibility that things might not work out.
What will you do if you and your partner can’t get along and don’t want to continue in business together? Will you buy each other out, and if so at what dollar amount? These are the questions that are much easier to answer up front, when everyone is still getting along, rather than when you’re already in a dispute.
What happens if someone dies? You may be happy to continue in business with your partner, but what about her husband? And heirs usually prefer money to a share of a business. Many businesses choose to buy life insurance on the partners to fund a buyout in this scenario.
What if someone just wants to retire, or move into a different line of business? Shares in small companies can be difficult to sell on the open market, but if the other partner(s) want to continue in business, the partner who leaves will want to be compensated.
On the flip side of that question, if the departing partner finds someone to buy his share of the business, will the remaining partners embrace with this new person?
Whether you organize your business as a partnership, a corporation, or an LLC, it’s best to give some thought to your potential exit strategies. These and other questions are usually addressed in a buy-sell agreement, or in your business formation documents.
Addressing business exit questions at the start can help avoid expensive litigation down the road. This is truly a case where an ounce of prevention is worth a pound of cure.
If you are forming a business, or have already done so, and need a buy-sell agreement, please contact our office. Our business attorneys in Menlo Park have helped numerous businesses work through these very difficult decisions.
