Rule #5: Exit Strategy

When starting a company you only want to think about all the things you need to do get your business to begin. Most people generally do not want to think about how their business will end.

But an essential thing to discuss with your partner is your exit strategy.

This does not mean planning for failure. Some businesses disolve simply because one or both partners want to move on to other things. But in either case, the company in question will be something in which you will invest a great deal of work. It should not be abandoned lightly because there are consequences to walking away.

Imagine two people start a company where one person designs clothes and the other person markets and sells them. If the designer wants to leave the business, the seller may be left holding the bag. This is especially true if seller has invested a great deal of their time and capital in this company. What responsibilities would the designer have to the seller? Can they simply quit? Or must they provide adequate notice?

These things are important to discuss, because as your company moves along, you may find much of your personal capital tied up in the life of your business. The loss of a partner without a clear plan in place may cause you to lose not only your business investment but your personal wealth (more on this in part 6).

You and your potential partner should discuss what happens to the shares of the leaving partner. Can they sell to anyone without consulting the other partner? Or do they have to first offer the shares to the remaining partner?

If it is a matter of the work that will be lost if the partner leaves, does the leaving partner have a responsibility to find an adequeate replacement before leaving?

If both partner wish to end the partnership, then the division of assets and liabilities should be laid out at the outset