To prevent an uncomfortable and embarrassing separation, the owners should agree on how to separate before joining together. Very similar to a prenuptial in marriage, a ‘Cross Purchase Agreement’ identifies the various business issues to address such as valuation of the ownership position, the respective form of purchasing the departing ownership and time period of payout.
Similar in nature to an employee contract, management agreements identify the means of placing personnel into management roles within the company. In addition each role has restrictions and guidelines to accomplish their respective position. In most small businesses, this is located in the bylaws but as a business grows and prospers, there should be a separate set of policies and procedures for the management team.