How to Write a Divestment Agreement

Legal advice is recommended before signing any binding agreements.

Many business agreements focus on the contributions each partner or group will make toward building the business and working toward its success. Don't overlook another key aspect of any business plan, however -- what will happen if a partner needs to leave or someone needs to withdraw his investment in the company? Write a clear, legally binding divestment agreement to avoid misunderstandings in the event of a partner's departure or a company's decision to withdraw investments.

Instructions

1. Require that the party wishing to divest itself of its holdings in the company provide the stakeholders or board of directors with a signed, written request that clearly states the reason, amount and desired timeline for the proposed divestment.

2. Review with all stakeholders what each partner or investor has put into the business and what he can expect to receive if he leaves or if an investment is withdrawn. Attempt to reach a mutual agreement about the exact amount of money, percentage of profits or losses and percentage of any capital goods to which each stakeholder is entitled in the event of divestment. Clearly spell out each party's responsibilities during and after the divestment process.

3. Consult with a legal professional or impartial mediator if you are unable to reach a mutually agreeable divestment plan through the process in Step 2. If necessary, agree to be bound by the determination of an arbitrator about how to divide assets or returned investments.

4. Prepare a complete, error-free and legally binding written version of the agreement reached in steps 2 and 3. Specify such items as the amount or percentage of divestment occurring, the exact manner in which the transfer of these assets will take place, the timeline for the withdrawal or transfer of assets and, if appropriate, the final disposition of the divested assets. Identify clearly the individual or party responsible for each stage of the divestment process, as well as when the process is officially deemed completed.

5. Provide draft copies of the prepared agreement to all parties involved, with instructions to review, edit if needed and approve the document by a specified deadline. Specify how proposed changes will be considered and evaluated for action. Incorporate all agreed-upon changes, and prepare clean copies of the final agreement for signature by all involved parties.

References

• All Business: How to Write Effective Business Contracts
• Innovaro Pharmalicensing: Regulatory Due Diligence and Out-Licensing of a Late Stage Product
• International Finance Corporation: Downsizing, Decommissioning and Divestment