“B-Nups”: The New Term Every Business Partner Should Know

If you’ve ever heard of a prenup before marriage, you already understand the basic idea of a B-Nup, which is short for “business prenuptial agreement.” To be honest, we made up the name for pre-existing legal documents that are already out there. 

The B-Nup is our version of a proactive legal document that helps business partners or co-founders outline what happens if (or when) one of them needs to exit the partnership. Think of it as your plan for an amicable split, the roadmap you create while everyone still feels optimistic about the undertaking of a business ahead.

Why You Need a B-Nup

Starting a business together can feel a lot like falling in love with a shared idea. You trust each other, you’re aligned on goals, and you’re ready to take on the world. But just like in any relationship, things can change.

A B-Nup makes sure you both have clear expectations for how an exit will work… long before emotions or stress get in the way. It helps protect the business, your finances, and your peace of mind by spelling out how to divide responsibilities, ownership, and assets if one person decides to move on. Is your partner allowed to compete? Who owns the clients? What about the intellectual property? How do you calculate a buy-out?

Is A B-Nup An Operating Agreement?

It can be part of your operating agreement for sure. It could also be a founder agreement or a shareholder agreement. Really, you just need a document that says at the beginning how you will exit the relationship gracefully. Do you want a vesting schedule? How will you express disagreement? How long are you willing to keep hiking up the trail with your business partner with a giant pebble in your shoe? Those are just some of the questions we ask you in our process. 

You can learn more about operating agreements in our earlier post: A Guide to Operating Agreements.

What Happens Without One

We recently worked with clients who needed to separate after years of running their company together. They didn’t have a B-Nup or an operating agreement in place. What should have been a simple process turned into months of back-and-forth and almost landed in court… twice. Let’s just say what could have been a few thousand dollars worth of work quickly turns into a litigation retainer and five figures when things don’t end well. Unfortunately, we have seen this happen over and over again. People are caught off guard and without the appropriate paperwork in place, the state may decide how to allocate your partnership stake and dissolve your business. Unfortunately, there are not a lot of options available when the relationship becomes that damaged. 

That situation could have been avoided with a few hours of proactive legal planning and discussions about the end of the business and relationship. Most people forgo this step because they are excited about what they are creating and don’t want to rock the boat. Sure, everything is great when you’re picking out the name of your business (don’t forget to clear it as a trademark) or dreaming of how wealthy you and your partner are about to become with that amazing product or service. 

When to Create a B-Nup

The best time to create a B-Nup is when the relationship is strong and communication is clear. That’s when you can make level-headed, fair decisions about what’s best for both the people and the business.

Even if you never need to use it (and we hope you don’t), having a B-Nup gives everyone involved the peace of mind that you’re protected, no matter what direction your path takes. We can chat about all the things that usually make or break a business partnership: money, control, communication, values alignment, even intuition checks. We have seen it all. Divorces are difficult and you may not think it is the same in the business world, but at the end of the day your business partner may know you even better than your spouse. Think about how much time you spend with this person working?

Bottom line:Get your B-Nup in place before you need one. It’s one of the smartest steps you can take to protect your relationship with your partner and your business.

Need help?Basecamp Legal can help you draft a custom B-Nup that fits your partnership and your goals. Schedule a consultation to get started.