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What Happens if One of the Shareholders or Business Partners Wants to Leave the Business?

By: Roger P Durkin, Esq.

It is relatively easy for a few associates and friends to start a business. What happens if a shareholder or partner dies, is injured, becomes seriously ill, wants to retire, or simply wants to sell his or her interest? What happens if your former associate and shareholder dies and his or her spouse keeps the equity shares, remarries and the new husband, Mongo, wants to be on your board of directors? What about the interests of your children? How do you give or otherwise transfer equity interest to your children? Should you? It is easier to start a business enterprise than it is to exit the business without conflict and confusion.

What Should You Do?

  1. Begin by understanding that ownership or shareholder difficulties can come in all forms including retirement, sickness, injury, family problems, divorce, spousal influence, company culture conflicts or simply where a shareholder wants to sell his interest.
  2. You may have the ‘boiler-plate' company by-law describing a 30-60-90 day form of buy-sell agreement. This type of agreement could cause more problems than it was intended to resolve. Your exit plan should not be left to chance. It should be in place to enable a shareholder or partner to liquidate his or her interest.
  3. Call Durkin Law, set up an appointment. There is no cost to you, i.e. no charge to take a half hour or so to review your current situation. If you hire Durkin Law to develop your exit strategy and buy-sell agreement, we will do so only after you have agreed to our engagement in writing. In Greater Boston call (617)720-0332 or anywhere in the U.S. call 1-800-698-9833.

Durkin Law, P.C. is experienced in business exit strategy from three perspectives.

First, historically, Roger Durkin was a member of the Philadelphia-Baltimore-Washington Stock Exchange and president of Synercap Corporation, a venture capital company. As such, he helped start many companies, raise capital, take them public and sat on the boards of directors guiding their progress. We see the exit strategy from the self-interest of the investment banker's perspective, the exiting shareholder's view point and from the company's strategic view.

Second, Durkin Valuation Consultants, an affiliate, has been providing business appraisals involving shareholder disputes, divorce, decedent estates and those addressing particularly troubling, misconstrued and poorly written shareholder buy-out agreements. We have seen families torn apart by an inability to develop a smooth exit strategy. We have seen relatively successful operating companies bruised and battered by the divorce of a shareholder where appraiser experts negligently or intentionally misrepresented the underlying value of the business.

Third, we are attorneys who were, and are, motivated to help companies resolve this potentially destructive event by a well-drafted corporate buy-sell agreement. We will need to ask a lot of specific questions about your business, then we can complete the appropriate research and develop a workable buy-sell agreement.

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