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Top 5 most common business exit strategies

On Behalf of | May 17, 2024 | Business & Commercial Law

Owning or helping to operate a successful business typically does not happen by accident. It is the result of years of hard work and dedication on the part of a professional.

Yet, no matter how important a company is to an individual, eventually they need to arrange for their exit from the organization. Retirement, health challenges or other opportunities could lead to a change in ownership and leadership at a company. The following are the most common exit strategies for those looking to leave a business in the near future.

Arranging for an IPO

Planning for an IPO leads to the establishment of shareholder relationships and diversified management for the organization. Someone looking to exit a growing or thriving company might consider arranging an IPO as part of that process.

Negotiating a merger or acquisition

When a company has unique intellectual property or highly skilled employees, other businesses in the same industry may have an interest in acquiring that company and its resources. The sale of a business or the negotiation of a merger with another company can allow someone in the leadership role to profit from the transaction while also acting in the best interest of the employees who work for the company.

Selling the business to a new owner

It is often possible to negotiate a buyout where a specific outside individual acquires an ownership interest in a company. Like a merger or acquisition, a transaction selling the business to a new owner or a group of investors can be a way for someone to recoup what they have invested in the company thus far.

Liquidating the organization

Particularly in cases involving a professional practice and a retiring professional, selling the business may not be the most reasonable goal. In many cases, the liquidation of company assets followed by the dissolution of the business entity can be an appropriate exit strategy for someone who is ready to retire or pursue new opportunities.

Arranging a management buyout

When a company has grown from a small organization to a large, complex one, there may be multiple people involved in the management of the company who have an interest in seeing it continue to thrive. A management buyout (MBO) can be a way for those who have made career-long commitments to an organization to retain their positions with the company or move up within its organizational hierarchy. An MBO can help minimize operational disruptions and can be beneficial for those acquiring the business and the professional leaving the company.

Any exit strategy comes with a variety of risks and challenges. People may face lawsuits during or after their exit from the company. Consulting with a business litigation attorney can help entrepreneurs and executives identify risk factors and mitigate the liability involved in their chosen exit strategy. The right help can make leaving an organization a lower-stress process than it might otherwise be.