- posted: Oct. 30, 2022
- Business Law
Dissolving a business or ousting one or more of its owners can be catastrophic. In some ways, a business breakup is akin to a married couple divorcing. People who once shared financial interests and may even have liked each other are splitting up permanently. A “business divorce” may result from owners not getting along, death or incapacity of a key owner, improprieties by one of the owners or changes in outside conditions that make the business less profitable. Whatever the reason, owners planning on initiating a breakup should give the matter careful thought.
Before starting a business divorce, the owners should fully understand their rights and obligations to one another. Many written business agreements include policies and procedures for changing ownership or dissolving the firm. These might include buying out an owner’s share at market value or paying a predetermined level of compensation. Each owner should be prepared to abide by the applicable terms and conditions. If the agreement is incomplete or ambiguous, the owners should make a good faith effort to come to an agreement. They might jointly decide to submit the case to an experienced mediator to facilitate negotiations.
Another pre-dissolution issue is whether there are potential economic or legal limitations on divorce. If a substantial portion of the company’s assets are divided among the owners, the business can pay the departing owner(s) in cash or other liquid assets. However, in some cases a divorce entails the sale of non-liquid assets such as land, buildings, equipment and inventory. This may get further complicated if any assets are encumbered by mortgages or other security interests. Dividing assets can also be problematic if the business will struggle without the assets that are used to pay departing owners.
In addition, the owners must consider how the relevant markets will react to the business divorce. Customers, employees and competitors might view the business as failing or otherwise undependable. The owners may find it difficult to participate in their industry if personal or professional reputations are damaged. Those involved in the business divorce should do their best to minimize any potential disruptions and to avoid harming the reputations of the business or its owners.
Every owner should try to make the business divorce as clean, orderly and swift as possible. Letting emotions run high does not serve anyone’s interests. Excessive infighting costs everyone involved money, time and potential opportunities. By contrast, a speedy divorce allows everyone to move forward. The owners who are leaving can turn their attention to new business ventures and the remaining owners can focus on nurturing the existing business. An experienced business divorce attorney can help you protect your individual rights.
Hemmer DeFrank Wessels PLLC is one of Kentucky’s most prominent business law firms. Based in Fort Mitchell, our firm provides comprehensive legal services to businesses and business executives statewide. Feel free to contact us online or call 859-344-1188 for an initial consultation.