Business Partnership Breakup: 5 Survival Tips

Breaking up is hard to do, that goes for your business as well. Below are five simple tips to consider BEFORE you start a business, or break one up. Just as with a real marriage, the best, most predictable and most cost effective planing is done before you consummate the relationship.

In other words, always get a business pre-nup in case you need a business divorce.

  • Have a professionally drafted plan, that means up to date and professionally drafted corporate operating and buy-sell agreements that provide for the death, incapacity or exit of a partner and what the rights and duties of each party are in that event. Lawyers often see people who saved $5K or less on getting it done right by a real lawyer spend $100K or more to litigate issues that should have been settled in the paperwork.
  • Think of all the reasons to separate. Sometimes people die, sometimes they get sick. or arrested, or are in scandal (like Harvey Weinstein) or get divorced or just want to retire or move. Disability is the most likely problem, nine times more likely than death before age 65.
  • Make sure that the agreement is funded with life and disability insurance that pays off your partner’s family (or your own) if they die or are disabled and can’t work, either long term or permanently. Most agreements call for this insurance, most business owners don’t actually have what they are supposed to.
  • Trust, but verify. A partner that completely delegates financial issues to another usually gets screwed, or at least “thinks” they did. Know and check on what comes in and goes out and why.
  • Be protected beyond the edges of your operating agreement. That means personal asset protection planning and insurance that protects you against claims against you as the owner, CEO, president, etc.  referred to as “director’s and officer’s insurance” a.k.a. D&O insurance.

Related:

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