Over the last year or so, I’ve received phone calls from prospective clients seeking to exit from a closely-held company. The common thread among them? In nearly every case nobody affiliated with the business ever thought to complete the initial corporate paper work, much less plan for the possibility of a co-owner’s future exit. To me this is a lot like buying a new car but never putting oil in it. It will hum for a while but eventually it’s going to explode.
I can tell you that exiting from deals like this is never easy. When things aren’t in writing, when shares were never really issued, when boards were never really formed, when officers weren’t really elected, and when buy-sell agreements were never even discussed, it begins to look a lot like a wrestling match to see which owner is going to leave the business, which owners will stay, and how much money is going to change hands. Needless to say, the outcome depends a lot on bravado and the willingness to engage litigation counsel to press your point. Equally needless to say, none if this is necessary.
The life lesson that these clients now know: plan ahead, and follow through with the paperwork.