A lawyer explains why partners may opt to hold a corporate auction when they find it's time to sell.
Imagine the worst-case scenario: your partner is bored with the business or wants to expand in a direction completely at odds with your own. You both know it's time to split -- but you can't agree on an exit strategy. Put simply, which one of you should buy the other one out, and at what price? And how can you make the deal happen?
"The best resolution is often for the partners to hold a corporate auction," says Joel I. Cherwin, a partner at Boston law firm Cherwin & Glickman. "It's a time- and cost-effective way of resolving the problem and staving off the risk of litigation."
Auctioning off a company to one of its partners is actually a fairly simple task to carry out. "The partners sign an agreement in advance that spells out exactly what's happening: the date, time, and place of the auction, and what the ground rules of the actual sale will be. After that, the actual auction will take a couple of hours -- or less -- usually in a lawyer's office."
Best of all, auctions can be customized according to the corporate situation or the partners' personalities. "You can decide that each person walks into the room with a sealed bid, and the highest one takes it," says Cherwin. "Or, if you both want room for maneuvering, you can specify that there will be two or more rounds of bids." Risk takers can even opt for Russian roulette. "In that case," Cherwin says, "one partner names a price at which the other partner decides whether to buy or sell."