Nobody likes to consider a breakup at the start of a new relationship. Like romantic relationships, business relationships can (and do) end—and failing to plan for the worst can lead to much more than a broken heart. A fallout with a business partner can mean the loss of all of your clients, your staff, or your future profits—especially if you don’t have the right corporate documents in place.
Planning for All the Ways a Business Partnership Could End
A strong business relies on partners who can collaborate and compromise, and the inability to work together is a common cause of a business breakup. Unresolved disputes affect day-to-day operations, disrupt the work environment, and ultimately cost the business clients and profits.
However, not all partnerships end in conflict. There are many reasons a business could potentially dissolve, including:
- New opportunities. A partner’s business goals or personal needs may change over time, such as wanting to stay home with a child or moving across the country for a career change.
- Death. The sudden death of a partner can have catastrophic effects on the business and the partners left behind, especially if business interests form a large portion of the estate.
- Incapacitation. A business plan may fail to address what will happen if a partner is in a coma, becomes mentally incapacitated, or is otherwise unable to make decisions or perform work.
- Bankruptcy. If one partner is in financial distress, they may make risky business decisions or file for bankruptcy. One partner’s troubles could alter the public perception of the company, affecting your reputation, profits, and corporate value.
- Illegal activities. Theft and fraud on the part of one member can bring the entire enterprise to its knees. A forensic accountant can examine the books and records to help other members of the partnership determine if there are any discrepancies.
- Retirement. One day, you or your partners may want to retire or step back from the daily operations of the business. You will have to decide if retirement will result in the dissolution of the partnership or if retirees can continue to draw income.
Documents That Can Help You Avoid a Painful Breakup
Although most business relationships won’t last indefinitely, many business owners fail to have an exit strategy in place. The simple ability to plan for the end as soon as you form the business can make the partnership more productive for as long as it lasts.
We can ensure that partner exits and dissolution are addressed in your:
- Operating agreement. A partnership agreement outlines the roles and rights of each partner, the management structure, and establishing your business entity. However, it should also include directions on how disputes will be handled (such as mediation or arbitration) and how remaining partners will cope with the exit, death, or disability of a partner.
- Succession plan. A partnership does not have to end when a partner exits. If the business is going to continue, the remaining partners may buy out the former partner’s interest or even transition into a sole proprietorship. The succession plan should outline the process for absorbing additional responsibilities, making final profit distributions, and replacing a partner.
- Exit plan. You don’t need to plan just for someone else’s departure—you need to plan your own as well. A strong exit plan at the very beginning of your business relationship can help keep you on track over the years, hitting all of your milestones until it’s time to retire or move on. As one of the few certified exit planners in the nation, AJ Yolofsky is uniquely suited to helping clients achieve both their current and future business goals.
- Estate plan. Corporate law and estate planning intersect in significant and complicated ways. If you are exiting a partnership, you should ensure that all debts and taxes are paid in full—otherwise, your heirs may be stuck with the bill after your death.
We Get You Where You Want to Go
As your Family Business Lawyer®, Yolofsky Law focuses on your business’s legal and financial future, so you have time and energy to focus on doing what you love. Give us a call today to discuss your options or download our free guide, Be a Hero to Your Business.