The beginning a new business venture is an exciting time filled with optimism. Business owners hope the venture will be rewarding and prosperous for many years to come, perhaps indefinitely. Unfortunately, not all businesses succeed for one reason or another. That’s why it is important to consider the (albeit remote) possibility that one of the owners will want out somewhere along the way and have a contingency plan in place from the beginning. You may never need it, but if you do, you’ll be glad you put the time and thought in up front.
Start-up or merger documents usually include a business plan and perhaps corporate bylaws to govern day-to-day operations, responsibilities, ownership and compensation of partners, shareholders, or members. A comprehensive plan should also include exit terms if a business partner decides to move on.
The most common exit options for private businesses include:
1. Family Succession: Transferring ownership interest to a family member.
2. Management Buy Out (MBO): Selling ownership interest to internal management or employees.
3. Management Buy-in (MBI): Selling ownership interest to outside management.
4. Flotation: If ownership is represented by stock, a shareholder can list the shares on the stock exchange.
5. Franchising: Creating a franchise and then selling the franchisor rights.
6. Trade Sale: Selling one’s ownership interest to a third party.
7. Merger: Merging the business with another business and allowing the first business to be subsumed in the merger.
8. Winding Up: Closing the business down and winding up operations.
Prospective business owners should discuss which exit options would work best for the business and which ones would be unacceptable. Your particular business and circumstances will determine which option is best, but putting a tentative exit plan on paper in the beginning can save many headaches later. Consult with an experienced business law attorney to help structure the best outcome possible for you and your business.
The attorneys at the Scolieri-Beam Law Group, P.C. can review your situation and help you compare options. Located in western Pennsylvania, our attorneys are experienced in Pennsylvania business law and can take care of the details for you every step of the way. Contact us today at (412) 765-0546 or via email at info@scolierilaw.com.