Nobody enters into a commercial venture anticipating that the enterprise will fail. Nevertheless, small and start-up businesses are particularly susceptible to dissolution or drastic changes in ownership. Relationships sour, peoples’ priorities change, someone gets sick or dies or the business suffers poor profitability or takes a different course than originally planned. There are innumerable factors that can lead to a dissolution or ownership change that is commonly known as a “business divorce.”
Like a dissolution of marriage, a business divorce can get messy and contentious. Company owners almost always have emotional attachments to a business that they manage hands on and may have founded. In addition, it’s common for small business owners to hold equal or nearly equal shares, making it difficult to agree on an exit strategy for any one of them. Every small business owner should be prepared to handle a potential breakup in a way that won’t disrupt or jeopardize the business.
Most importantly, you should have a breakup contingency plan in place. A comprehensive partnership or shareholder agreement should include a process for the orderly withdrawal or buyout of one or more of the owners. Written agreements can set out procedures to be followed and a method of determining suitable compensation. A competent business lawyer can help with negotiating and drafting an agreement appropriate for your organization.
Another element of an effective business divorce strategy is to be reasonable and level-headed. Just like marital divorces, business breakups can get very emotional, which can easily derail discussions and cause unnecessary harm to everyone involved and to the business itself. Infighting among owners can cause disputes to end up in court, which often leads to tremendous waste of valuable time and money.
Communication among the owners is also critical. A qualified business and commercial mediator can be of great assistance, getting the owners past the impulse to blame each other and to focus instead on the essential issues at stake — such as coming to a fair agreement concerning the firm’s assets and liabilities. A mediator can be instrumental in keeping discussions on track toward a productive outcome.
Finally, the parties should decide what their priorities are moving forward. If the divorce is resolved fairly, there is a better chance that nobody will be unnecessarily harmed. For the departing business owners, it is advantageous to wind up the existing affairs so that he or she can concentrate on another venture. For those remaining, making sure the departing owner is well compensated, although expensive, is a way to avoid creating a disgruntled competitor. All involved should stay focused on achieving their long-term goals.
Hemmer DeFrank Wessels PLLC is a full service business law firm based in Fort Mitchell, Kentucky. Our commercial attorneys can provide represent your individual legal interests in a business divorce matter or can serve as impartial mediators. Feel free to contact us online or call 859-344-1188 for a phone consultation.