Many people start businesses with partners, often so they can benefit from the others' expertise, connections and finances. But sometimes one founder concludes over time that the relationship is flawed and parting ways would be best.
Every beginning has an end, just as every business partnership will eventually expire. Whether the conclusion of the partnership is by choice, health problems, or death, one should have a plan in place to keep things amicable.
Stephen Covey noted so adroitly, one of the keys to effectiveness is to “begin with the end in mind.” Accordingly, the founders of a business should structure and run the business with a clear commitment to their shared ultimate goals for themselves and their business. In the vernacular of business planning, this oftentimes is called “exit planning.”
If you fail to “begin with the end in mind” and make legal plans to memorialize the end game for your personal and business relationships, then you likely will only enrich lawyers. So, when it comes time to part ways down the road, what steps should you be taking now?
The Wall Street Journal recently addressed this subject in an article titled “Breaking Up (With a Co-Founder) Is Hard to Do.”
One key takeaway from the article is the “when and how” of exit planning. The best time to address the issue is when the business is founded. Consequently, the best way to memorialize the exit strategy in the event of the disability, retirement or death of a founder is through various legal documents created when the business is founded. For example, an Limited Liability Company (LLC) can use the LLC Operating Agreement, while a corporation may use its Bylaws or various Shareholder Agreements.
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Don’t delay this important aspect of planning, as every business with eventually need an “exit.”
Reference: The Wall Street Journal (September 22, 2012) “Breaking Up (With a Co-Founder) Is Hard to Do”