Going Into Business With a Partner: Planning for the Business Divorce

When people contact us wanting to form a new company, and explain that they want to go into business with someone else.I usually jokingly tell them that’s not a good idea, and then explain that if they don’t do some good planning on the front-end, they’ll likely endure a lot of headaches, stress, and much greater attorney fees on the back-end, when someone decides that they don’t want to be in business with their partner.

At some point, if you are in business with someone else, there will be a situation where a partner dies, becomes disabled, or when one of you want out – or want the other partner out – of the business.So, it is wise to make plans for such events.

A very important part of that planning is done in the member’s agreement or shareholder’s agreement – depending on whether the business entity is a LLC or a corporation.The agreement needs to address how the partners will break up – when someone wants out, wants to sell their interest to someone else, or when the two partners decide they can no longer continue together.

Plans that we call buy-sell provisions are used in these agreements, and they address these different scenarios. Often, the agreement will prohibit an owner from selling their interest in the company to a third party without the other owner’s consent, or at least without granting that other owner a right of first refusal.Sometimes, when it appears that the owners cannot get along anymore and need a business divorce, the plan may call for one owner to propose a number, and then the other partner determine whether to buy out the first partner, or to sell his own interest.

There are a lot of different options, but the important thing is to make sure that the owners have a plan in place to address these issues.If they wait until after a crisis to try to develop a plan, odds are great that it will not be an easy process.

If you’re looking at starting a business in Georgia, I invite you to request The Guide To Starting a Business in Georgia. It answers four frequently asked questions we receive about the process, and also answers three questions that people should be asking when thinking about starting a business in Georgia. And, should you need assistance with your business law needs, please contact us.