Like a parent preparing an estate plan or an engaged couple preparing a pre-nuptial agreement, when you start or invest in a business you should have an exit plan. Deaths, disabilities, retirements or just the passage of time can create the need for substantial changes in your business or investment, and planning for the inevitable makes good business sense.
Some issues to consider in preparing your exit plan include:
- Discuss and document an exit plan for owners and investors when forming your business and when bringing in new owners or investors.
- Encourage all stakeholders to accept and participate in the exit plan.
- Ensure the exit does not unduly harm the business or its continued operation.
- Protect the business and its assets following an exit.
- Design exit plans to enable the business to maximize its value at the time.
- Periodically review the exit plan to ensure it still works for all owners and investors, especially if it establishes values or payment terms for departing parties.
- The plan should address voluntary, involuntary, retirement and death situations.
- Enable the business to continue after an owner or investor exits.
- Consider whether key man, life or other insurance is appropriate to fund an exit plan.
- Define what triggers an exit and how different causes or events should be treated.
- Consider whether exiting parties will have restrictions on competition or their actions in the future.
- When possible, provide adequate transition or replacement provisions.
The attorneys at Brooks, Tarulis & Tibble, LLC have years of experience in advising clients about drafting, amending and enforcing business exit plans. Please contact us if you have any questions.
