Have an Exit Strategy for Your Business Partnership

It's said only two things are certain, death and taxes. Business partnerships, not so much. They are like marriages so they may last a lifetime or they may break up in less than a year. Though they start with the best of intentions and excitement for the future, they can end in circumstances that are not so positive.

The key to having an exit strategy for your partnership is to have a well written partnership agreement that lays out how it can end with the parties' good will and finances still intact (or at least as much as possible). There are many possible situations where it's best if a partner leaves or if the partnership ceases to exist. You should plan for these possibilities before they happen. In this agreement the parties need to address...

Death or disability of a partner.

Insurance and estate planning documents are tools that may address this issue. Each partner would have to come up with someone they trust to make decisions for them in case they become disabled or when they pass away. Alternately, if either of these events occurs there could be a mechanism by which the other partners pay for the person's share of the business or the partnership dissolves.

Dissolution.

Not only could bad things happen personally to a partner, bad things could happen to the business or to the relationships between the partners. If there are irreconcilable differences between the partners and the business essentially can't function or move forward, there should be a process by which the partnership is dissolved.

Divorce.

If a partner gets divorced there's a possibility that an ex-spouse will have an ownership share in the business and become a partner not by agreement between the partners but through a divorce settlement or order. The partners should address what happens if one of them is heading towards a divorce.

Resignation.

It may be time for a change for a partner. He or she may want to start a new business or retire. The agreement should spell out who does what under this situation.

Merging or selling.

The plan should include a process for deciding the sale or merger of the partnership. How should that be decided? What happens to each partner's interest in the business? How will the proceeds of a sale be split?

If you are starting a partnership and need help putting together an agreement, the partnership exists but you want an agreement created or a current one changed, or there are difficulties with the business and partners and you feel you need legal representation, we can help. Contact our office so we can talk about the situation, what laws may apply and what we can do to protect your rights and interests.

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