November 21, 2012

Many times, the last thing entrepreneurs consider in the process of starting a new business venture is how they will handle the departure, on good terms or otherwise, of a co-owner. As a recent article explains, it is never too soon to begin crafting an exit plan.

By its very nature, co-ownership of a business by its founding individuals cannot last forever. Consequently, the article suggests that co-owners need to address and have an action plan for three important questions:

1. When will a co-owner have an option or obligation to sell or otherwise divest himself of his ownership interest?
2. In situations where an ownership interest will be sold, how will the co-owners determine an appropriate purchase price?
3. After an appropriate purchase price is determined in sale situations, where will the money to pay it come from?

“Trigger events” are events that lead to the option or obligation to sell an ownership interest in a business. Some of the more common trigger events occur when a co-owner dies or becomes disabled, or terminates his employment with the business. Although planning for these decisions may involve difficult or uncomfortable discussions, wise co-owners will maintain and update a well-documented exit plan.