The beginnings of new business relationships and entities are bathed in hope and optimism. Everyone expects the venture to be rewarding and to last, if not forever, then at least long enough to find success. Unfortunately, not all business ventures have a happy ending.
In the early stages of planning a business acquisition, start-up, or merger, much care is usually put into drafting documents such as a business plan and corporate bylaws to govern day-to-day operations, responsibilities, ownership and compensation of partners, shareholders, or members A comprehensive plan will also include exit terms should a business partner decide to move on.
The most common exit options for private businesses include:
1. Transferring one’s ownership interest to a family member. This option is known as family succession.
2. Selling one’s ownership interest to internal management or employees. This option is known as a management buy out (MBO).
3. Selling one’s ownership interest to outside management. This option is known as a management buy-in (MBI).
4. If ownership is represented by stock, a shareholder can list the shares on the stock exchange. This option is often referred to as flotation.
5. Creating a franchise and possibly then selling the franchisor rights.
6. Selling one’s ownership interest to a third party. This option may be referred to as a ‘trade sale’).
7. Transferring one’s ownership via a merger with another business.
8. Closing the business down and winding up operations.
Even though optimism reigns in the beginning of a business partnership, owners should discuss which exit options would work best for the business and which ones would be unacceptable. Putting an exit plan on paper in the beginning can save many headaches later.
Ultimately, choosing the best strategy depends on your circumstances. Whatever you decide, consult with an experienced business litigation and transactional law attorney to help structure the best outcome possible for you and your business.
The attorneys at Glass & Goldberg provide high quality, cost-effective legal services and advice for clients in all aspects of business litigation and transactional law. Call us at (818) 888-2220, email us at firstname.lastname@example.org, or visit us on the web at www.glassgoldberg.com to learn more about the firm and to sign up for future newsletters.