A partnership exit plan

If you've read this blog for some time, you know that I've written often about what happens when business partners can no longer get along. But other things can happen to break up a partnership that should also be considered when setting up a business venture. For example, what if one of you dies, becomes incapacitated, or suddenly is in a divorce that may cause your partner's share of the business to be owned by his ex-spouse?

Buy-sell agreements are integral to the start of a new venture, but a well-drafted one should cover not only what happens when it is time to end the partnership, but also what happens if the unexpected occurs. Some of the issues a good buy-sell should cover are:

1. A provision allowing for a buyout of a deceased partner's share of the business (often using the funds from life insurance policies paid for by the business).

2. A provision requiring a forced sell-out of a partner's interest if that partner is convicted of certain wrongdoing (such as felony criminal convictions) or, if he is in a profession, loses his license.

3. Contractual provisions that restrict the shares of a partner that pass unintentionally to a third party (such as through death or divorce), so that the surviving partner does not have to make partnership decisions with this new, unchosen partner.

A well-written buy-sell contract can help you envision and solve many of a partnership's long-term possible problems before the partnership ever gets off the ground. If you're in North Carolina, and need help setting up a venture or entity, feel free to contact me for an appointment.