In today's Freedom Friday blog and email newsletter, I want to talk about a topic that probably does not come up often enough, although I do get a lot of inquiries each year about LLCs who wish to restructure their business because either someone is leaving the LLC, someone is joining the LLC, or both, and that's how to successfully leave a business partnership.  By talking about a “business partnership,” I'm including any LLC that has multiple members, corporations with multiple members, and actual partnerships, which by definition have multiple members.  Any time you have a business with more than one owner or “partner,” you have a business partnership, and its important to be able to leave a business partnership successfully.  So, in today's Freedom Friday blog and email newsletter, I'm talking about how to successfully leave a business partnership.

There are successful ways to leave a business partnership, and there are ways to leave a business partnership that are less than successful, because they cause conflict.  The one thing you don't want to do when leaving a business is burn a bridge (unless that's the reason why you're leaving because the other partner has burned your bridge) or cause unnecessary or additional conflict from what's already happened.  So, here are three (3) successful strategies to consider if you need to leave your business partnership:

1.  Sell Your Interest to Another Owner

The first successful strategy to consider if you need to leave your business partnership is to sell your interest to another owner.  If there is one other owner of the business, you may consider selling your interest to that individual, but if there are multiple owners of the business, you might consider selling your interest to any of them, depending on what your LLC operating agreement or your partnership agreement or your corporate bylaws allow.  If you have a well-crafted buy-sell agreement as part of the above, this may be the best strategy for you in leaving the business.  However, there are occasions when you shouldn't sell your interest to a co-owner.  If you and your co-owner cannot agree on the price, the pace of the transaction is too slow, there is conflict between you and the co-owner, or the co-owner is not interested in buying your interest, then you need to look for a different strategy.

2.    Sell Your Interest to an Employee

The second successful strategy to consider if you need to leave your business partnership is to sell your interest to an employee.  Of course, this only applies if you have employees, and many small businesses don't have employees, so if you don't have employees, then this isn't an option.  However, if you do have employees, then selling your interest to an employee has some advantages, including the fact that you're placing your responsibilities on a knowledgeable party, this offers benefits and incentives to the employees, and you can create a gradual exit plan.  Training an employee to take over your ownership interest in the business can be a great way to make a slow but impactful exit and leave a legacy behind you.  Of course, you need to have a great employee in order to make this work.

3.    Sell Your Interest to a Third Party

The third successful strategy you should consider if you need to leave your business partnership is to sell your interest to a third party.  Of course, this will only work if your operating agreement or partnership agreement (or corporate bylaws) allows for such a share.  Many operating agreements, for example, do NOT allow this, and require you to offer your membership interest in an LLC first to your co-owner(s).  In such a case, selling to a third party is not an option.  In addition, the other co-owner(s) typically have to approve of the person or entity which you're selling your interest to, as well.  Sometimes offering your interest to a third party can help you achieve a higher price for your ownership interest in the business, along with more immediate cash, and possibly some tax benefits.  However, you'll be negotiating with a party which is looking to maximize his or her profits, negotiations are often longer and more challenging, and you will often need to get the approval of the remaining co-owners for this to work.  If they do not want this third party joining the business, it may be a dealbreaker.

Thinking about starting a small business?  Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth?  Please contact me at [email protected] to schedule a FREE strategy session.

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