Planning for the Exit You Hope You’ll Never Need
Most business founders and partners spend a lot of time planning how to launch a company and far less time planning how someone might eventually leave it. That’s understandable. Early on, everyone is aligned, focused on growth and ready to succeed. Talking about breakups from the outset often strikes people as pessimistic.
But the reality is that partner and founder separations are common. Life happens. People’s goals change. New opportunities arise. Sometimes relationships simply evolve or don’t work out. The question is not whether separation can happen, but whether the business is prepared if it does.
A well-drafted partnership agreement, shareholder agreement, or operating agreement can make an eventual separation far less disruptive, both financially and emotionally. The goal is not to predict every possible outcome, but to create a fair, predictable framework before tensions arise.
Below are several key factors business owners should consider when planning for a partner or founder exit.
1. What Events Trigger a Separation?
Agreements should clearly define the circumstances under which a partner may leave or be required to leave the business. These are often called “triggering events” and commonly include:
Voluntary resignation;
Retirement;
Disability or incapacity;
Death;
Termination for cause;
Termination without cause;
Bankruptcy or insolvency; and
Violation of non-compete or confidentiality obligations
Clarity here matters. Vague or undefined triggers often lead to disputes about whether an exit provision even applies.
2. Voluntary vs. Involuntary Departures
Not all exits are created equal. Agreements should distinguish between a partner who chooses to leave and one who is forced out.
Key questions include:
Does the departing partner have to give advance notice?
Can the business delay the departure to allow for transition?
Are buyout terms different depending on the reason for departure? and
Treating every exit the same can create perverse incentives or unfair outcomes.
3. Ownership Interests and Vesting
For founders and early partners, vesting provisions are critical. Vesting aligns long-term commitment with long-term ownership.
Consider:
Is equity fully vested on day one, or earned over time?
Does vesting accelerate upon certain events? and
What happens to unvested interests when someone leaves?
Without vesting provisions, a short-term participant may walk away with long-term ownership, which can create resentment and operational friction.
4. Valuation and Buyout Mechanics
One of the most common sources of conflict is disagreement over value. Agreements should address:
Whether the business must buy out the departing partner;
How the purchase price is determined;
Whether valuation is formula-based, appraisal-based, or negotiated; and
How disputes over valuation are resolved
Equally important is timing. Payment terms matter just as much as price.
5. Payment Structure and Cash Flow Protection
Even if a buyout is required, the business still needs to survive afterward.
Agreements often address:
Lump sum vs. installment payments;
Payment timelines;
Interest on deferred payments; and
Security or guarantees, if any
A buyout that bankrupts the company helps no one.
6. Continued Roles and Access
Departing partners may still have influence, knowledge, or relationships tied to the business.
Agreements should clarify:
Whether the departing partner remains involved in any capacity;
When access to company systems and information ends; and
How customer and vendor relationships are handled
Clear boundaries reduce post-separation confusion and risk.
7. Restrictive Covenants and Ongoing Obligations
Non-competition, non-solicitation, and confidentiality obligations often become more important at separation than at any other time.
Key considerations include:
Scope and duration of restrictions;
Geographic limitations; and
Enforceability under applicable state law
These provisions should be reasonable, tailored, and aligned with how the business actually operates.
8. Dispute Resolution
Even with good planning, disagreements happen.
Agreements should specify:
Whether disputes go to court, mediation, or arbitration;
Where disputes are resolved; and
Who pays fees and costs
A defined dispute resolution process can prevent a disagreement from becoming a business-ending event.
Planning Is Not Pessimism
Planning for a potential founder or partner separation is not a sign of mistrust. It is a sign of maturity and proactive thinking. Clear exit provisions protect relationships, preserve value, and allow everyone to move forward with confidence if circumstances change.
For founders and partners, the best time to address separation is when everyone is still aligned and invested in the company’s success. Waiting until emotions run high almost always limits options.
If your governing documents haven’t been reviewed recently, or if they never addressed these issues at all, it may be time to make that happen. We can help! Reach out at LetsGo@Cruxterra.com
