How you go about handling the situation [of a business partnership split-up] can mean the difference between an amicable split, where you run the business as you see fit, and a messy divorce, in which you wind up losing money, clients, resources or other critical assets.
In every end there is a beginning. When it comes to the founders of a business, there also ought to be an end. An amicable end.
As 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.
Regardless, one thing is clear: do not bury your head in the sand. For every business, an “exit” will be required. As a result, you can either make plans now, or leave it up to lawyers to clean up (literally) later.
Reference: The Wall Street Journal (September 22, 2012) “Breaking Up (With a Co-Founder) Is Hard to Do”