Succession is a will, not an exit
The same clause reads two ways, and which way it reads is set by how much of the paper is spent on the ending, not by the wording of any one line. Mine was spent almost entirely there, it came
good faith
Meaning
An implied covenant in business relationships requires parties to deal honestly and adhere to reasonable commercial standards of fair dealing. In transaction documents and succession agreements, good faith operates as a standard of performance that prevents a party from abusing technical loopholes to defeat the agreed purpose of the deal. It governs the execution of contractual rights where one party holds discretionary power over an outcome, ensuring that such power is not exercised arbitrarily or maliciously.
The boundary of this standard is reached when a party is asked to sacrifice its own clearly defined contractual rights or financial interests to rescue a failing partner.
Contractual Behavior
Written agreements often leave gaps because parties cannot foresee every contingency. In these situations, good faith requires that both sides act in a manner consistent with the common purpose of their venture. When a founder hands over day-to-day control while retaining an equity stake, this standard prevents the incoming operator from taking actions that technically comply with the contract but deliberately strip the asset of its value.
It ensures that the spirit of the transfer is maintained even when specific duties are unwritten. The mechanism works by evaluating the behavior of the parties against the baseline of an honest commercial actor in similar circumstances.
Interpretive Friction
When a succession document focuses heavily on failure scenarios, the emphasis of the text shifts, creating an impression of distrust that complicates subsequent interactions. An agreement loaded with defensive clauses may indicate that the parties are planning for litigation rather than cooperation, even if each individual clause is legally sound. Under these conditions, the requirement of good faith becomes harder to maintain because the written terms signal a defensive stance.
The incoming partner reads the heavy emphasis on exit routes and penalties as a sign of hostile intent, which increases the transaction costs of the transition. Consequently, the transition slows down as both sides demand explicit written permission for tasks that should be handled through routine cooperation. This friction arises not from the actual terms but from the proportion of the document dedicated to protecting against worst case scenarios.
Relational Cost
Operating under a standard of mutual reliance carries a high attention cost for a founder who has left the day-to-day seat. It forces the departed owner to monitor the transition closely rather than focus on new projects. When good faith is absent, this monitoring cost rises because every operational decision must be scrutinized for hidden motives.
The owner’s energy is drained by constant vigilance, which acts as a drag on both their capital and their peace of mind.