Many questions arise when ending a business relationship, such as how to divide the partnership’s assets, can one business partner carry on the business without the other, who can buy an ownership interest, and how to value shares. Ending the relationship will go much more smoothly if these issues are discussed before there’s a problem, rather than having to decide them once issues already arise.
How to Prepare for a Business Breakup?
Most importantly, a strong offense is the best defense. The best strategy to avoid a bad business divorce is to have strong governing documents (such as operating agreements, partnership agreements, and shareholder agreements) clearly outlining the rules for separation of business owners. A well-drafted agreement can help to prevent a deadlock from occurring over disagreements about how to end the relationship. Another important document to consider is a buy-sell agreement. A buy-sell agreement discusses conditions surrounding a partner’s exit and considers issues such as when a buyout is triggered, how to value shares, and who can and can’t buy into the business in the event you or another owner want out. This creates additional protections for the remaining partners against unwanted partners.
If business partners decide to dissolve the business so it no longer exists, a dissolution agreement can help simplify the process. A dissolution agreement sets out important terms for the dissolution, including a timeline for the process and the duties of each partner.
You can find more information about business breakups, here.