Why an ‘exit strategy’ is crucial in a partnership agreement

On Behalf of | May 1, 2020 | Business Formation

Entering into a business partnership is a little like entering into a marriage. However, unlike a marriage, you and your business partner(s) probably don’t expect or hope to be together until death do you part.

Even many couples who get married and hope for a “happily ever after” get a prenuptial agreement to protect their interests and make a break-up easier if it happens. Business partners need to plan for their eventual “break-up,” even if they anticipate that it will be many years down the road. You want that eventual end of your partnership to be an amicable and profitable one for both of you so that you can move on happily to your next business opportunity or perhaps retirement.

Partnerships end or evolve significantly for many reasons. Your partnership agreement should probably address what will happen in the following scenarios:

  • A partner dies.
  • A partner resigns.
  • A partner divorces.
  • A partner’s disability prevents them from participating in the business.
  • You merge with another company.
  • You sell the business.
  • One partner wants to buy out the other.

It’s wise to plan for all of these scenarios and more, as well as how you’ll handle disagreements. A good partnership agreement also addresses how much capital each partner will put into the business, how much partners will be paid, how the responsibilities will be divided, etc.

An experienced attorney can help you negotiate and draft a partnership agreement that will help serve as a roadmap for your business. If you’re having issues with a partnership agreement that’s already in place, they can also work to protect your interests.