When a Business Owner Wants Out

A business owner's exit is rarely as simple as deciding to leave. The rights of the departing owner, the obligations of the remaining owners, and the financial terms of the separation may already be addressed in the company's governing documents. Understanding those provisions early can help avoid unnecessary disputes.

Start with the governing documents.

Review the operating agreement, shareholder agreement, buy-sell agreement, and any other documents governing ownership. These agreements may determine whether an owner can voluntarily withdraw, whether the company or other owners must purchase the interest, and what procedures must be followed.

Determine how the ownership interest will be valued.

Valuation provisions can vary considerably. An agreement may use an agreed value, a formula, book value, fair market value, or an independent appraisal. It may also specify who selects the appraiser and who pays the cost. Before negotiating a buyout, determine whether the governing documents already establish the valuation process.

Look beyond the purchase price.

The amount paid for the ownership interest is only one part of an exit. Consider when payment will be made, whether it will be paid at closing or over time, and whether any existing loans, guarantees, capital obligations, distributions, or other financial arrangements must also be resolved.

Address control and responsibilities during the transition.

An owner may also serve as a manager, officer, employee, or authorized signer for the business. An exit should address when those roles end, who assumes ongoing responsibilities, and how access to company accounts, records, systems, and property will be handled.

Consider what obligations continue after the exit.

Confidentiality, restrictive covenants, indemnification obligations, guarantees, and other contractual provisions may survive the transfer of an ownership interest. A separation or buyout agreement should be evaluated together with the company's existing agreements so that the parties understand what remains in effect after the transaction is complete.