You Need a Business Legal Exit Strategy
When you have partners or co-owners in your business, you should create an exit strategy to extricate yourself from the company in a legal, workable manner. If you never envisioned leaving this business after you founded it, take heart. You’re not alone.
Few entrepreneurs consider ever leaving a business they create. However, many successful entrepreneurs encounter legal, costly difficulties if they eventually want to exit the company or developments, e.g., death of a partner, that generate structural challenges to the business’s’ survival. Avoiding these expensive developments is vital to continuing the business operations.
Reasons to Have Business Exit Strategies–Now
Plan for the unexpected now, not later. Think about just a few of the reasons for creating legal exit strategies.
* You or one of your partners becomes disabled or dies.
* You face a serious economic downturn similar to the recent recession.
* You decide to leave the company to embark on another business adventure.
* You receive a bona fide offer from an outsider to purchase your business.
Having a legal exit strategy for each of these potential situations eliminates the need for panic decisions that often do not work. You–and your partners or co-owners–will already know what will happen. They will have agreed with your exit plans if you put them in writing now, particularly if you create your strategies before your lawyer writes a partnership or ownership agreement.
Components of Successful–and Legal–Exit Strategies
The best exit plans are proactive, not reactive. Creating succession and exit plans now, with your attorney’s advice, before you need them, smooths most transitions in smaller businesses.
Consider using the following components in your exit strategy.
* Think about when you envision leaving the business. Upon retirement? After a disability? Upon receiving a lucrative offer to sell? After the death, disability or exit of a key partner?
* Write down possible solutions to all the reasons you identify for leaving the business.
* Create succession plans. These might include leaving your controlling ownership share to a spouse or family member, selling your shares to a specific person for a stated price or naming a qualified successor to run the company.
* If you hope to sell the business in the future and your dream comes true, write your preferred plan down. Have your attorney legally state your intentions in the partnership agreement.
* Investigate “key person insurance,” which is life insurance on each partner in an amount sufficient to buy back the partner’s share of the business. This avoids having partner shares placed in the limbo of probate upon a partner’s death.
Keep your lawyer involved with every step of creating your exit strategies. This will ensure the legality of your plans to ensure a successful transition.
Ryan C. Young | Small Business Attorney | Business Planning
