One of the most important things to consider when starting a business is how will it end.

No one expects conflict when a business relationship ends, otherwise, they wouldn’t be going into business with those partners in in the first place. But the reality is, not all businesses are successful, and even the successful ones sometimes close up shop or change owners. Occasionally, new partners join and old partners leave. Life happens. Partners disagree, get married or divorced, and eventually, pass away. These are big events for a small business, but they can be managed with good organizational planning.

The alternative to good planning is risk. The risk that you and your partners won’t reach an agreement at some point in the future. The risk that after your passing, your family might not manage business relationships the same way you did.  In short, risks that may lead to litigation.  And the only thing certain about litigation is that it is expensive. Not only is it expensive, but litigation can tie up business assets and cripple an otherwise profitable enterprise.

Oftentimes, changes in ownership and operations are not planned at the outset of a business. A recent case from the Tennessee Court of Appeals highlights a common issue. In MARK STEVEN MEADOWS ET AL. v. SHARON KAY STORY ET AL., a father started a landscaping company as a sole proprietorship in the 1960’s. His son worked there part-time during high school and became a full-time partner after he graduated. Initially, the company did traditional landscaping, but after the son started it developed more excavation work. By 1986 the son formed a concrete business that operated hand-in-hand with the excavating business. Eventually, the son’s concrete business became the main focus, and the father began to focus on other activities.  In 2009, the excavating and landscaping business was transformed into an LLC, and the father and son each took a 50% interest. Unfortunately, a few years after forming the LLC, father and son had a complete falling out. The son sued for judicial dissolution of the LLC because the two owners were deadlocked on how to proceed with the business. In response, the father sued for dissolution of son’s concrete business and claimed an ownership interest in the company. After years of litigation and tens of thousands of dollars in attorney fees, a court-appointed receiver had to determine the ownership of the assets of the company.

It’s never a bad idea to review your succession planning or operating agreement with a business attorney. Every business changes over time and your governing documents should keep up with your changing needs. Whether it’s a traditional partnership, an LCC, or a corporation, there are lots of ways to plan for contingencies that provide organizations with more certainty in turbulent times. And the best time to do that planning is when the parties are still in agreement. Good business planning will create a structure where everyone can agree on how to deal with an issue in a fair way. A good dissolution framework acknowledges the reality that different parties often have competing interests.

The best example I can provide is the old story of two children sharing a piece of cake. They both want the whole thing, but they have to share. How can they ensure a fair division? Simple, the first child gets to cut the cake, but the second child gets to choose her piece. The structure of the transaction forces the self-interested parties to act in good faith to achieve a fair and equitable outcome.

Starting a business is an exciting time, particularly if you go into business with partners. For small business owners, there is always a lot to do, and it’s easy to put things off. One thing that gets often gets neglected is how the business is going to end. But there are lots of options for dissolution and succession planning. Whether it’s a well-drafted Put and Call Option or a Buy/Sell agreement, there are lots of tools available to help business partners manage these types of risks and create more certainty in their organization. Spending the money up-front to set things up properly is often the thing that prevents spending lots of money on litigation fees after things fall to pieces.