Should I have a business termination “prenup” with my partners?
I have had the privilege of working on many different types of cases involving many different areas of law. The most difficult litigation is business break ups.
These types of cases combine the intense emotion and hurt feelings of a divorce and also the complexity a commercial a large commercial dispute. Unfortunately many of these disputes would have been avoided had the parties taken the time to determine what to do in the event that somebody decides it is best to go there certain way.
The most important part of a business relationship or partnership agreement is how to effectively
terminate the partnership or what to do when another principal or partner decides to leave.
Unfortunately, this is often the most overlooked clause of the agreement. More often than not, the agreement makes no mention of how to effectively wind down the entity.
When it does make mention, the clause is often boilerplate and the provisions laid out don’t really fit well for the business and do not account for certain foreseeable situations.
It is imperative that those individuals starting a new business thoroughly think through what to do in the event that one of the partners wants to leave the business.
The situation is of course most analogous to that of ending a marriage with an effective pre-nuptial or “prenup” agreement vs a divorce. A prenup is an agreement two people entered into before they get married that lays out how property will be divided in the event that the marriage.
Obviously there are two reasons why most people don’t get prenups. The first being, that when most people get married they are younger and don’t own any significant types of property or draw a significant income, so it is looked at as a waste of money. The other and more common reason is because it is an awkward conversation to have.
Of course, it’s this same awkwardness that is the main reason that business relationships often overlook their termination clauses. Typically at the beginning of any type of relationship all of the parties are full of hope and optimism and nobody wants to acknowledge that there is a chance that this might not work out.
More often than not, the people coming together have a previous relationship which leads them to believe that they will be able to resolve disputes amicably. Sadly, more often than not this isn’t the case.
