Start Up – The Prenup – Universal Issues – Disposition of Interests

Disposition of Interests.

So, now you want out, or maybe one of your partners wants out.  Negotiating your way out of a business relationship is best done when both parties are level headed and that means before the event that triggers the decisions to leave.  Let’s think about the reasons why a member wants to leave – other interests, bankruptcy or other need for money, disability and death are the standard reasons but not the only ones.  The underlying question is whether all dispositions should be treated the same, regardless of the reason.  While that may be the easy answer (and sometimes the right one) generally dispositions should fall into two buckets – voluntary (desire to sell) and involuntary (death/disability) and the solutions for each may vary.   Some examples of “outs”: right of first refusal (worthy of a section all its own – but generally giving the other members the right to buy you out if you find a buyer for your interest); blanket prohibition on sales (not nice, but remember, in a small or start-up business with no significant cash flow why should the remaining partners have to find “cash” to buy out the other); buy out at fair market value (a “decent” solution for death or disability – it gives the estate a value and the remaining partners have a way of continuing the business).   Remember though, there are no easy solutions.  How do you determine fair market value for a start-up business and how do you deal with a disgruntled partner if they have no right to sell?  I could go on (as most lawyers do), but I think you get the point.

Next installment, Universal Issues – Dispute Resolution, and remember, ALWAYS CONSULT AN ATTORNEY FIRST.

About ebizlawyer

Laurence Associates has extensive experience in outsourcing, internet law, software, computer systems, data protection, information security, privacy and corporate services both from the customer and vendor perspective. Elaine Laurence, the founding Principal of Laurence Associates, has unique expertise in understanding and handling transactional issues facing financial services institutions and small businesses. For more information visit my website at:
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