Planning for the best outcome and also for unhappy outcomes in a business relationship is vital. While we focus here on relations between individuals jointly owning a business, many of the points made can apply to relationships between businesses.
In either situation, while the planners certainly anticipate great things, it’s always good to have exits if things aren’t so great. And the best time to do this is up-front, when the relationship is forming. Because it’s at that point that there’s the greatest uncertainty about who would “want out” (the specific subject of this note) and the rules to which parties agree are formed without passion but by logic and common sense.
If there’s a “first rule” here, it’s to have that discussion. Parties looking to the wonderful future they anticipate may be loathe to think about “what ifs.” But if the enthusiasm of the moment cannot survive the reality that every plan has risks, the anticipated venture will show its weakness from the start and perhaps merits postponement. If there’s a corollary to the first rule, it’s that you should not get lost in dwelling on the bad outcomes at the cost of what may be a promising partnership. (“Partnership” as used here is meant in the broad sense of a business relationship between individuals for their mutual profit. The actual structure of the relationship may be a partnership or joint venture, or it may be as shareholders of a corporation or members of a limited liability company. For more on structuring see our note on Structuring Your Business.)
You might have the discussion before counsel is involved in your planning or you might start it with the aid of counsel. However it is done, counsel should be consulted. That would be the second rule. Not because counsel knows your business better than you (far from it) but because experienced counsel will have a host of experiences of prior deals, directly or through training, to draw on. Counsel can shed light on some ways that things can go wrong you may not have considered and can assist you in working concerns through to acceptable solutions. For example, while you’re thinking about the possibility that your partner may simply lose interest or steam, you also should consider what would happen if one of you suddenly dies? What happens to the deceased partner’s interest?
You should keep in mind that the mountain is less likely to wear you down than the pebble in your shoe. People change over time and relationships evolve. One of you may be perfectly happy with a business’s performance and the effort necessary to maintain a given performance level while the other may feel that it’s all just too much for what the business produces. One of you may decide that they simply need a break from the relationship or the business, or may be inspired to take that extended trip around the world.
Finally, whatever protocols you agree to up-front for handling differences, you are always free by mutual agreement to change your minds when confronting a situation. You are not jointly bound to any rules you jointly decide no longer fit.
We’ve focused here on exit issues, but there are also structural matters you should consider, from the form of business to owner compensation to work expectations. These are all appropriate subjects for other notes that we will publish from time to time.
We provide the counseling services and can put the agreements you reach into writing as part of your initial business planning process. When necessary we team with others to help entrepreneurs and businesses work such matters through in Montgomery County, including Rockville, Bethesda, Potomac, Gaithersburg, Silver Spring, and Wheaton, in Prince George’s County, and in the District of Columbia, Arlington and Fairfax. Contact us to discuss your business issues and see how we can help you.
