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Breaking up in Business

17 April 2020
Mark Friend
Accounting & Compliance, Structuring a Business, Selling a Business

Sometimes things don’t work out in business and it’s time for the owners to go their separate ways.

It’s fair to say that business relationships usually begin with enthusiasm and passion, grow through balance and communication and endure the highs and lows of life. Sometimes, however, businesses don’t weather the storm and things come to an end. In case this happens it is important to have a plan.

In business, having clear agreements around how the partners can exit the business is acknowledged as good practice. It is important to have this conversation at the beginning of a business partnership and to document it. This can either take the form of a partnership agreement (for unincorporated businesses) or a shareholders’ agreement (limited companies).

In those agreements you should detail all the possible circumstances of the business cessation- e.g. death, illness, one partner has had enough and wants to leave or both partners agree to go their separate ways. It is important that the agreement details the mechanism for the split and also the method to value the business, thereby making the split far easier to manage. The agreement should also outline which big business decisions need the consent of all partners and conversely what can be carried out by each partner alone and on behalf of the business. Getting a good agreement in place and upfront can save hours of heartache and thousands of pounds in additional costs trying to agree a split.

When selling or exiting a business, it is important to remain professional. You might feel disappointed over a failing business partnership, but angry or emotional communications won’t help the process. Take your time, remain calm and if you find yourself drafting a sharp-toned email, save it to your drafts and review it again the next day before deciding whether to send it.

Always seek professional guidance – there are many financial and legal advisors in the market who have considerable expertise in this area and who could help you achieve a successful exit from your business.  Above all, make sure you consider the tax implications of the split and seek advice to avoid silly mistakes, such as resigning as an employee/director and then selling your shares and consequently losing valuable capital gains tax Entrepreneurs’ Relief.

Make sure you keep more of your pot of gold!

When the time comes to exit, you need to have a good understanding of your firm, its financials, any outstanding issues, etc.. If you and your business partner(s) decide to sell the firm to another company, the buyer will be keen to download your knowledge of the business. If you can explain things in detail to the potential new owners, it will help to build their confidence in the deal and could positively affect how much value they assign to the purchase.

Financial issues and long-term partnership agreements can complicate matters. However, you should aim to exit your business in a way that is mutually beneficial and satisfactory for everyone involved.

If you need help with writing a shareholder/partnership agreement or dealing with the accounting and tax implications of a business breakup then please contact Mark Friend.

The content in this blog is correct as at 17/04/2020. See terms and conditions.

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