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Planning ahead: Business ‘pre-nup’ can ease stress, save money in event of business closure

Whether it’s the end of a marriage or a split between business partners, breaking up can be hard to do.

But just like a prenuptial agreement before marriage lays out provisions in the event of a divorce, it isn’t at all far-fetched to apply the same principles when forming a business.

Surely you want your business to succeed, and you may have a solid business plan that outlines all aspects of your company, from its purpose and goals to its organization and management structure—and everything in between. But many business plans often fail to include succession plans or provisions for shuttering a business.

Whatever the reason, you may eventually be faced with the prospect of closing your business. Perhaps your business partner is “cheating” on you and stealing from the company, resulting in the need to shut it down. Maybe your business is losing money.  Or, you just want to retire and there is no one to take over your company.

Call it a corporate or business “pre-nuptial agreement,” if you will. Having a succession plan and provisions in place for the future dissolution of your company while your business is still in the “honeymoon” stage can save you stress and legal expenses when—and if—it becomes time to permanently put out the “closed” sign.

These things are usually referred to as “Buy-Sell Agreements,” “Partnership Agreements” or “Shareholders’ Agreements.” Similar provisions can well be included in LLC Operating Agreements. The main thing is to agree in advance on a fair, orderly procedure for exiting the business if things don’t work out.

Things to consider including in a corporate prenuptial agreement may include a variety of matters related to closing your business or turning it over to someone else, and will vary depending upon the size and structure of your company. Generally, a plan should include:

  • who, if anyone, will take over the company;
  • who is authorized to end the business;
  • plans for notifying stakeholders and employees;
  • instructions for handling any tax obligations;
  • instructions for handling payments to creditors;
  • a listing of any debts and who is responsible for them;
  • a listing of all assets, including and who is entitled to them; and
  • instructions regarding distribution of stocks

It’s best to create succession plans and provisions for closing your business when you start it. But if your company is already established, it’s not too late to review your current operating structure and make changes to ensure that appropriate provisions are in place when you need them.

Whether you’re turning your business over to someone else or closing the doors for good, breaking up can be hard to do. But having a plan in place may ease the heartbreak—and the cost.

No matter if your business is existing or a new venture, it is always advisable to seek the guidance of a knowledgeable attorney for advice related to every aspect and stage of your business.

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