Planning For A Graceful Exit. No one wants to start a marriage planning for divorce. However, when you own a business with one or more individuals, you have to do exactly that; you need to plan for the end. But planning for failure doesn’t mean that you will fail. It just means that you will have a graceful exit should the venture or the relationship take an unexpected and undesirable direction. So, what should you do to protect yourself as you start a new venture?
- PLAN: Make sure you are properly incorporated at the outset, using the proper business form to suit your needs. You need to make sure that you are protecting your personal assets from the claims of others, including your partners.
- PROTECT: Make sure you have an operating agreement or partnership agreement. This is critical to the successful operation of your business. This document sets the rules under which you will operate the company. It outlines who is responsible for what general jobs, voting rights, ownership interests etc. Most importantly, this agreement will outline the procedure to be followed when an owner wants to exit the business. Having a predetermined guideline on the procedure for notifying the business owners that you want to leave, determining the value of your interest, establishing whether an owner or the company can buy your shares, whether a third party is allowed to buy shares etc. are all important considerations which must be resolved at the outset.
- PRESERVE: Remember that while you and your partners are friends, maybe even family, there may come a time when the relationship isn’t so sunny and the trust has vanished. You are planning for this time and must assume that no one will acknowledge or remember the terms of a handshake agreement when you are pitted against each other in an adversarial relationship. Any important and critical parameter of this relationship must be in writing.
Plan, Protect, Preserve. This must be your mantra as you start any new venture or as you evaluate any existing ventures. These are a few simple steps that will protect you and your business interest in the event of a business divorce.