15 April 2016 by

Owner Managed Businesses – Owner Exits

Owner Managed Businesses (OMBs) are the lifeblood of the UK economy and make up a very high proportion of all companies in the UK. As with any business, OMBs may have to deal with the exit of an owner at some stage of their business lifecycle. If OMBs have previously thought about and agreed (perhaps by way of a shareholders’ agreement) what will happen if an owner leaves, then the business can generally continue without any major impact. However, where this has not been considered or agreed, it can cause the business major disruption and, in some cases, can ultimately lead to the end of the business.

There are a number of reasons why an owner may leave a business, such as a break-down in working relations, the owner moving away, personal circumstances etc.  It is therefore prudent for the owners to think about and agree how this will be managed, if it does happen, and to include the agreed mechanisms within a shareholders’ agreement (or partnership agreement).

We generally advise that any company should have a shareholders’ agreement (or, in the case of a partnership, a partnership agreement) to regulate the relationship between its owners.  However, even where a business has such an agreement, it may not include clear mechanisms for managing the process if an owner leaves the business.

Owners often have a number of roles within an OMB, including being a shareholder, lender, director and possibly an employee (although this article does not address the employment-related aspects if an employee owner leaves a business). Therefore, when considering and documenting the process for an owner leaving a business, all of the different roles that the departing owner has within that business must be dealt with.

The most effective way to avoid disruption, when (and before) a departing owner leaves, is to negotiate and enter into a shareholders’ agreement (or partnership agreement), at the outset of the business relationship, which includes provisions and processes for dealing with owner exits. This alleviates the pressure for all parties concerned – there is an agreed process to follow, which provides certainty and clarity, but some flexibility can also be built-in if necessary.

There are various types of provisions that can be included in a shareholders’ agreement (or partnership agreement) to prescribe what should happen if an owner leaves, for example:

  • A process for an owner to notify the business and the other owners of their departure;
  • Mechanisms to value the leaver’s share of the business on an exit;
  • ‘Good leaver’ and ’bad leaver’ provisions;
  • Timescales for the parties to take action (including making any payments);
  • Pre-emption rights (i.e. rights of first refusal) for share transfers; and
  • The potential structure of the transaction e.g. share buy-backs, put/call options etc.

If an owner has concerns regarding their position, then provisions to protect them can also be included in a shareholders’ (or partnership) agreement and/or, in the case of a company, any bespoke articles of association.

If you would like to discuss any issues relating to owner managed businesses, including a potential owner exit and managing that process, then please contact us on 0207 388 4700 or email us at info@boltburdon.co.uk

8 April 2016 by

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13 April 2016 by Victor Komori

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<img class=”size-medium wp-image-6707 alignnone” src=”https://www.boltburdon.co.uk/boltburdon/wp-content/uploads/Lynn-and-Louise-608-820×665-copy-Recovered-300×243.jpg” alt=”Lynn-and-Louise-608-820×665 copy-Recovered” width=”300″ height=”243″ /> &nbsp; On 1 April <a href=”https://www.boltburdon.co.uk/people/louise-dawson/”>Louise Dawson</a> became our Managing […]

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