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How may a business prepare for a partner’s sudden exit?

On Behalf of | Feb 4, 2022 | Business Law |

An unexpected illness or injury may cause a business partner’s sudden exit. Without a backup plan, you could find yourself running the business on your own. Absent a partner’s vital skills, your customers may search for another provider.

In some cases, when a partner dies, a spouse may inherit the deceased’s business ownership share under Minnesota’s intestate laws. A surviving adult child may also take control of an enterprise share regardless of his or her ability to manage a business.

How may partners protect their ownership stakes?

If concern exists that an event may result in a partner leaving, you could consider a contract to protect your enterprise. As noted by Entrepreneuer.com, a buy-sell agreement allows the business or remaining partners to buy another partner’s ownership share. A contract’s terms could prevent an unqualified outsider from inheriting a partner’s portion of the business.

Agreements may describe triggering events such as a natural disaster or terminal illness. When the event occurs, it triggers the buy-sell agreement. The business or remaining partners may then exercise their rights to buy out an affected partner’s ownership. Taking proactive action could help avoid operational disruptions.

How may a valuation influence an agreement?

An appraisal provides a fair market value for your business. Accordingly, a contract may describe the net worth of each partner’s ownership share. Reviewing assets and liabilities regularly provides value updates.

Changes to a contract may reflect how much the business and each partner may acquire if a triggering event occurs. Because business values change, you may revise your buy-sell agreement to show how much each partner may buy at any given time.

Businesses depend on the skills and reputations of their owners. If a partner needs to leave, you may have the opportunity to buy out his or her share.