If your partner has to leave the business, here are 5 steps you can take to ensure a smooth business transition:
When partners first get into a business together, they aim for longevity. They usually have similar goals and a vision for their product. However, over time, those interests may change. One business partner could start a family and decide to stay home to care for them. Another could suffer an injury or contract a disease that forces him to re-evaluate his business stance. When one of these circumstances or any other one forces one partner to leave an enterprise, it is usually up to the remaining partner or partners to determine the next step for the company. If your partner has left the business, here are five actions you can take to ensure the smooth transition of your business.
Buy Out the Partnership Equity
Typically business partners make up the full or partial ownership of every business. When you realize that your partner wants to leave the company, one course of action to take would be to ask him to sell his shares to the business. Alternatively, if another partner cannot afford the equity, the company could purchase the equity position and retire the shares for the benefit of all involved. Buying out a leaving partner’s equity will not only ensure the continuity of your business but also that the firm’s shares remain within the company.
Revisit the Partnership Agreement
When starting a partnership, one of the clauses partners agree on is an exit strategy in case one of them has to leave the firm. The purpose of the agreement is usually to ensure that the business survives when one partner leaves for personal, medical or financial reasons. Should a partner wish to leave the firm, the agreement would make it easier to determine the size of the package owed to him.
Get a Valuation
Knowing what a business is worth is key to knowing how much a company owes in benefits to the leaving partner. It will additionally make it easier for you to sell the business if you are also not interested in running it. You will know what a fair offer for your company is when you have a business valuation. Getting a valuation today could be the difference between a company that folds when a partner leaves and one that successfully sells out.
Partnership exits harm companies because they strain the finances of the firm. To ensure this doesn’t happen to your enterprise, you could take another route instead of buying the partner’s equity. You could, alternatively, use the statement of your company’s worth to hold an IPO for your company. And if you’re not sure a public launch would be the best thing for the firm, getting an interested third-party to act as a private investor could generate enough income to keep the firm afloat.
Hire a Lawyer
Engaging the services of an attorney during the partnership dissolution process is the only way to ensure the leaving process is legal and fair. Lawyers could also help you get past hardships such as inheriting an interest-holder in case the partnership dissolves because of death.
You can get both formal and informal business valuations from our Business Valuers. Choose your preference and speak to us today.
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The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
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