How to Avoid the Business Divorce

"If we are together nothing is impossible.  If we are divided all will fail." - Winston Churchill

Partnerships.  I often tell people that it is not a matter of IF . . . it's a matter of WHEN it will end. 

Call me cynical but unfortunately I have seen too many business partnerships break up and end in the dreaded business divorce.  Amazingly, many partnerships seem to survive the lean years.  But when success happens that's when people change and strange things start to happen.

So how do you prepare yourself to avoid the pain, expense and aggravation of the business divorce? 

Every business partnership (whether in a corporation, LLC or true partnership) should consider a buy-sell agreement from the outset.  As Central Iowa financial planner Art Dinkin says, Begin with the End in Mind.

A buy-sell generally covers how an owner can sell shares and how to value those shares.  Further, a good buy-sell agreement sets forth what happens in the event of death, disability, retirement, divorce, bankruptcy or other considerations. 

Effective buy-sell agreements will generally require a right of first refusal.  This means if one owner finds an outside buyer for his shares the owner must first offer those shares to the other existing owners.  This protects the owners from suddenly running the business with someone they did not intend to have as a partner.

The time to enter into a buy-sell agreement is at the beginning of the business relationship when everyone is excited and getting along.  It is often very difficult to negotiate a deal when something has gone wrong.  Without a buy-sell agreement, owners may end up in court and the business may suffer.

And amazingly, with an effective buy-sell, a strange phenomenon often occurs.  People actually get along and the business prospers. 

photo on flickr by oooh.oooh

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[Kim]

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