Experiencing trouble in paradise with your business partner? You’re not alone. Forbes reports that approximately 70% of business partnerships end in divorce. If you and your business partner no longer see eye to eye, it may be time for a split, and this blog covers some helpful tips to ensure you properly cut ties.
Decide on Your Course of Action
Are you ready to throw in the towel and dissolve the company? Or would you prefer to keep running the business by yourself or with a new partner? After all the time and investment, have you considered selling it?
Before initiating a business divorce, make sure you know exactly where you are headed. If you would like to run your company solo, consider how that will affect your business plan or focus. That way, you can set a clear roadmap for yourself after your partner is out of the picture and avoid any unpleasant surprises. Speaking of which…
Review the Company’s Governing Documents
Like any type of divorce, splitting up with a business partner can be complicated. To avoid any surprises when informing your partner of your intent to end the relationship, you should first review your company’s governing business agreements, such as an operating agreement or a shareholder’s agreement. If there are terms that require the company to be dissolved upon a partner leaving, you may want to rethink that type of restructuring. Alternatively, there may be mechanisms governing how to notify your partner of your intent to sell or purchase interest in the company and the agreed valuation.
However, sometimes business owners fail to put anything in writing and may not have a governing document in place. In that case, any split in the company will be governed by the appropriate default business law. This all hinges on what kind of entity your company is organized under: is it a limited liability company? A corporation? Something else entirely? Keep in mind that states will have different requirements for each entity type. Which is why you should…
Have an Experienced Attorney Advise You on your Business Divorce
If your company has an operating agreement (in the case of an LLC) or by-laws and a shareholder’s agreement (in the case of a corporation) an attorney can help you make sense of any governing document and ensure that you take proper steps to comply with its terms. If your company does not have anything in writing, an attorney can advise you as to what procedures are necessary and which laws govern.
By way of example, if you are a member of a New York LLC that does not have an operating agreement, the “default” rules of the New York Limited Liability Company Law (“LLCL”) will apply. However, these default rules may not always work in your favor. For instance, the NY LLCL does not allow expulsion of members, regardless of how egregious their behavior may be, without an operating agreement.
Furthermore, engaging your own individual attorney is crucial in a business divorce scenario. An attorney who assisted in forming the company with your soon-to-be ex-partner, or who jointly represents both of you in company matters, will face a conflict of interest and cannot adequately assist in the separation process. Your personal attorney will offer you more vigorous representation, especially when your interests are not necessarily aligned with your partner’s or the company’s. However, if you are worried about potential discord and difficulty, you can try to mitigate the damage by…
Informing Your Partner and Working Together to Tie Up Loose Ends
When possible, it is best to be reasonable, rational, and to avoid adding emotion to the mix when negotiating a business divorce. Parallel to breaking up with a significant other, this subject is sensitive and should not be taken lightly. By staying transparent and focused, you may be able to sidestep a messy situation.
Key considerations in the business divorce will revolve around fairly negotiating factors such as: ownership of assets, paying off company debts, usage of the name and brand of the company after sale or dissolution, breaking or assigning any leases, determining any severance packages to employees, rights to intellectual property, and access and ownership of social media accounts and websites.
Conclusion
Breaking up with a partner is rarely an easy task, yet it may be crucial for propelling your business forward or allowing you to take your career into your own hands. Handling the situation with care will prevent headaches in the future.
The experienced attorneys at Romano Law are ready to help. Contact a member of our team today.
