Business Break-Ups
Emotions run high; dirty laundry is aired; expenses soar. These are not just the characteristics of a break-up of a marriage, but they can also be the consequence of a business divorce.
Much like a marriage, partners often go into business together with the best of intentions, but sometimes things just do not work out. The best way to avoid or minimize the problems often associated with a business divorce is to plan ahead. Ideally, business owners should make sure that their organizational documents cover these issues at the outset of the business venture. Co-owners of a business should carefully review their organizational documents, whether it is a shareholder’s agreement (in the case of a corporation) or the operating agreement (in the case of an LLC), to determine what happens in the event the owners face a business break-up. Particularly in the case of an LLC, business owners should make certain that their operating agreement covers issues related to a break-up such as:
Who gets to retain what assets of the company?
How is the value of an ownership interest in the company determined?
Who makes the final decision to split up?
Without the proper planning and documentation of the parties’ agreements in the organizational documents, the business owners may have no choice but to have their business divorce resolved in Court. Business co-owners should review the terms of their organizational documents with their legal advisor from time to time to determine if revisions need to be made to address the company’s constantly evolving circumstances.