Think from the End when Starting a New Business
The best time to make decisions regarding how to exit a business venture is at the beginning, especially if the business is to have more than one owner. Why? Because, although this my seem a little cynical, it is in all likelihood precisely the time when the soon-to-be business partners will be most closely aligned and focused on a common goal. It is at this time, when leaving the business is the furthest thing from the partners minds, that objectivity can be achieved and a fair buy-sell agreement can be created that allows a partner out, without placing an undue burden on the remaining partner(s) and business. At a bare minimum a carefully crafted buy-sell agreement will cover, (1) How the value of an owners interest in a business will be determined; (2) What, if any, internal or external events will trigger a buy-out; and (3) Is the sale of a departing owners interest restricted in anyway.
For information on different types of buy-sell agreements and their tax implications see Structuring Corporate Buy-Sell Agreements by David Joy, Jo Koehn
