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Make sure your partnership has an exit strategy

On Behalf of | Dec 1, 2022 | Business Formation |

If you start a business by yourself, you can simply run it for as long as you want. Some people just run a new business for a few years and then move on to something else. It’s fairly easy to do and not much different than being employed somewhere.

However, if you start a partnership, then things get more complicated. One thing that you may need to include in your partnership agreement is an exit strategy. This clause can help guide your company if you ever do want to leave.

Questions to ask

The exact exit strategy that is correct for every business is going to be a bit different, depending on the unique situation that business is in. Below are a few questions you should ask so that you know how to create the proper exit strategy.

  • Is the strategy going to be different when the business is struggling versus when it is doing well?
  • How will you get a valuation of the business if one person wants to leave and needs to buy out the other person’s share?
  • Is someone who stays going to be obligated to buy out that share, which could be cost prohibitive for them?
  • If they want to leave and sell to a third-party, who gets a say in who they choose? Can they just find an investor or another business owner on their own, or do they have to talk to their business partner and come to an agreement together?

Even when both business partners agree that one partner should be allowed to leave, it can be very complicated to figure this out from a financial perspective. That’s why an exit strategy is so important and you want to have one in advance. Be sure you know how to add one to your business partnership agreement.