Thursday, December 27, 2007

Business Divorces

What can be the most difficult thing about running a business? Ending it.

The Iowa Law Blog has a brilliant post on the subject: How to Avoid the Business Divorce.

I say brilliant because I say about the same thing to all potential business start ups:

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.

I especially look at the buy-sell agreements for limited liability companies. I had a bad experience in trying to get a client out of one (he did) and I am twice shy when once bitten.