Business partnerships rely on two people getting along. Just like a personal relationship, the dream is sometimes better than the reality.
Entering a business partnership is similar to entering a marriage in that you create a legal contract. As with a divorce, ending that contract is complicated, and there may be friction. To understand more, let’s imagine that you have been in business together for some years and now one of you wants to leave. What would you need to consider?
What happens to the business when a partner wants to leave?
Does one of you want to keep the business? Or have you both had enough? Let’s say you want out, but your partner wants to retain the company:
- Can they afford to buy you out? If so, do they have to come up with the total amount now, or will you accept payment in stages?
- How do you set a price for your share of the company? Valuing a company is never easy as there are several ways to do it, leading to very different results.
- Can you sell to someone else? Does your partner have the first option to buy? If so, do they have to match any higher offer?
- Can you use your knowledge to set up as a direct rival, or are there restrictions? Intellectual property ownership, who a contact “belongs” to and the right to set up another business in competition all need to be defined.
Understanding these points from the outset ensures you can make provisions for them when you first create your partnership agreement. Trying to do so when your relationship is already broken will be far more challenging.