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Do you need an escape clause in a partnership agreement?

On Behalf of | Mar 19, 2021 | Business Formation & Planning |

When you launch a business partnership in California, it might seem safe to assume that you’re on your way to success and profits. However, even a successful business can cause tension between the business partners. It might not be fun to think about, but it’s important to include an escape clause in your initial contract.

What is an escape clause?

An escape clause is like a prenuptial agreement for a business. When you start the process of business formation and planning, you can include in your contract a way to solve future disputes. You might write a buy-out plan or talk about how you’ll resolve issues. You could also figure out how you’ll value the business if you both decide to sell it and cut your losses.

If this is your first business, you might not want to think about how it could end. However, planning ahead could make it much easier later on for you to escape the business or buy out your partner’s share. You and your business partner could have disagreements and disputes a few years down the road. Even if you remain on good terms and everything is going well, you might not want to run this business forever. An escape clause could help you or your partner get what you both want without destroying the relationship. Talk to a business law attorney if you need help writing a contract.

How can you start your first business?

Before you launch your first business, it’s important to get in touch with a business law attorney. They could help you write contracts, buy real estate, form partnerships and do everything else you need to do to get started. Your attorney could also help you plan ahead by including escape clauses in your contracts and taking certain steps to avoid business lawsuits.