A critical aspect of a partnership is the agreement on what happens if the parties wish to separate. It is better, from the outset, to agree to basic principles for separating. There are many alternatives. Here are just a few:
immediate or staged sale of partnership assets followed by liquidation cash distributions
partition or split-up of assets in specie
buy-out or sell-out of a partnership interest at a price agreed in advance or based on valuation formula
buy-out or sell-out of a partnership interest at an independent valuation
right to sell a partnership interest to a third party after a required first offer to sell to the remaining partner(s) at the same price being denied
auto-trigger requirement for first partner to buy other (second) partner's interest if first partner’s offer to sell at same price is not accepted by the second partner
auto-trigger requirement for first partner to sell own partnership interest if first offer to buy out other (second) partner at same price is not accepted.
In relation to planning for a separation, the partners should consider arrangements: to assist equity funding (such as life insurance); as well as dealing with the question of releases or acceptance of liabilities and indemnities; the giving of restrictive covenants; terms and security for outstanding price on a buy-out; repayment of loan accounts; the right to pursue or defend future tax; responsibilities in relation to PI liability and insurance cover; the making of public announcements in relation to the separation; and various other issues.
For further information, contact Joe Lederman at BALDWINS, Australian Lawyers & Consultants.
