How to?Be Sure You Are Leaving Your Business in Good Hands

Selling your business can be extremely overwhelming. You want to be sure that your company will be in good hands after you?leave.?After you have made the very important?decision?of who?to sell your business to, you now need to make sure that your key employees remain loyal to you and the business. To be sure those employees?pursue?the business plan you set forth for them?be sure to?take the?following?necessary precautions.??

Tips to Keep Your Key Employees Around After You Leave??

1. Although this may seem obvious, make sure that your employees sign a consent not to compete?form. This can be tricky because you could easily?offend?your most loyal employees with this?request,?and they could do exactly what you didn’t want them to do?in the first place?– leave and work for a competitor.?Be sure to?check with?an?experienced legal counsel in your state to determine the conditions under which, if any, covenants not to compete are enforceable. In most, but not all, states, covenants not to compete are generally?unenforceable?unless?they meet certain rather narrow exclusions—exclusions which often apply to key employees and management.??
2. Create an effective?incentive plan?for your employees.?In your incentive plan, be sure to “handcuff?them?to the business” per se. This means create an incentive plan that keeps your employees at your company for many years after your departure. You can do this in several ways. Reach out to your advisor to learn more about vesting schedules, funding devices, forfeiture provisions and payment schedules. ?

Risks of Not Properly Incentivizing Your Key Employees??

• Employees can leave and take employees, customers, trade secrets and long-term vendor relationships.???
• They can go to work for a competitor.???
• Sometimes,?if things get?really messy, they can delay your exit. If a key employee knows too much about the financial details of the sale,?they can?try to negotiate a larger portion for themselves.???

If you are considering a sale to key employees, you must work with advisors skilled in designing this type of transfer. You must also allow adequate time to complete the transfer. Reach out to your advisor to help you to decide if a transfer to key employees is the best exit option for you.??

The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial advisor. The information in this article is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial advisor. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

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