As Stephen Covey noted so well, one of the keys to effectiveness is to “begin with the end in mind.” Accordingly, the founders of a business should structure and run the business with a clear commitment to their shared ultimate goals for themselves and their business. In the vernacular of business planning, this oftentimes is called “exit planning.”
If you fail to “begin with the end in mind” by making legal plans to memorialize the end game for your personal and business relationships on the front end, then you likely will only end up making your lawyers rich on the back end. So what steps should you be taking now to plan for when it comes time to part ways down the road?
The Wall Street Journal recently addressed this subject in an article titled “Breaking Up (With a Co-Founder) Is Hard to Do.”
One key focus of the article is the “when and how” of exit planning. The best time to address the issue of how to handle the end of the business is at the very beginning, when the business is founded. In most cases, the best way to memorialize the exit strategy in the event of the disability, retirement or death of a founder is through various legal documents created when the business is founded. For example, a Limited Liability Company (LLC) can use the LLC Operating Agreement, while a corporation may use its Bylaws or various Shareholder Agreements.
Regardless of the type of your business or your current relationship with your co-founder(s), one thing is clear: if you are starting a business, you absolutely must not bury your head in the sand about what the future holds. For every business, an “exit” will be required. You can either make plans now, or leave it up to lawyers to clean up (literally) later.
For additional information about creating an appropriate exit plan, or for answers to your other business planning issues, please contact us at Peak Legal Group.Reference: The Wall Street Journal (September 22, 2012) “Breaking Up (With a Co-Founder) Is Hard to Do”