Retirement from a Partnership or Company is a topic worthy of weighty tomes and this article will not attempt to go into any detail of the specific aspects, it is written more as a signpost to highlight areas that will require discussion and agreement. I think the best general advice that can be given on the subject is to agree retirement plans in principle when the proverbial sun is shining and the business relationship is good, as trying to reach agreement if relationships are strained is infinitely more difficult and costly!
Retirement is never an easy decision if you are heavily involved in a Private Limited Company or Partnership. However preparing for it should not be put off as there are many things to consider and decisions to make that may not have been thought about before.
Most Partnerships and SME’s grow organically with new agreements and processes added on, on an ‘as needed’ basis, this can lead to problems if the legal documents governing the business relationship either no longer reflect the current arrangements or do not provide for the type of retirement you envision.
Retirement from a Partnership or Directorship does not automatically mean you will be putting your feet up afterwards; you could be leaving for any reason at all and may wish to pursue other ventures.
- Will the business continue after you leave? If so how will you get your investment out and how will any payment plan be structured.
- You will naturally be concerned with how to limit your liability to reduce the chances of anything coming back to haunt you in the coming years. You will also likely want any benefits you receive such as private health insurance or a company vehicle to continue for as long as possible.
- If you are leaving to start a new venture your business partners will no doubt be concerned about the potential for you to compete with the existing business or entice staff away. They may also be concerned if you have a valuable clientele that could leave with you or if you have access to confidential information. All of the above require discussion, agreement and inevitably compromise.
- If on the other hand the business will be coming to an end and its component assets sold are you aware of the formal steps that need to be taken to avoid leaving loose ends?
In the above examples there will generally be two sets of documents, the first are the formation documents, which deal with how the business is set up and run, they codify the relationship between the parties. The second set comprise the settlement agreement which sets out each unique retirement, it is this latter set that is negotiable!
The role of lawyers in these transactions is to make sure that the party they are advising is fully aware of all the benefits and burdens that come the documents they are about to put their name to. Naturally they should all be trying to get the best deal possible for their client.
For further information on this or other company and commercial related issues, please do not hesitate to call Martin Reynolds in our Property and Commercial Department on 0118 958 9711 or by email at [email protected].