The phrase “business divorce” refers to discussions or legal actions intended to dissolve a privately held organization or end a business partnership between at least two participants. “Business divorce” is a broad enough concept that it covers disagreements that lead business partners to dissolve their partnership as well as circumstances when owners must separate due to retirement, illness, or liability issues. It also covers situations in which a company partner wants to alter the management team’s makeup. The Texas business divorce attorneys at Berg Plummer Johnson & Raval, LLP know how to properly handle a sensitive and/or complex business divorce and can make the process easier and smoother for all involved.
What Does a Business Divorce Lawyer Do?
Conflicts over business divorce arise between majority owners and minority investors, who may be cofounders of a company, members of one’s family, or close friends. Conflicts between parties with significant ownership shares in private enterprises can be complicated, emotional, and often difficult, just like in a marital divorce.
There are various business entity types and the laws governing each vary, which adds to the complexity of these situations. This is one of the many reasons why knowledgeable legal counsel can be quite helpful by offering clients sound advice and strategic direction.
An experienced business divorce lawyer will be committed to and aggressive in safeguarding the interests of their clients’ businesses. A business divorce attorney will establish, pursue, and implement strategies aimed at protecting financial assets while reducing the stress that comes with the attendant problems from the very first contact with a client.
What is Business Divorce?
Despite taking place in a professional setting, business divorces are frequently just as emotional, disruptive, and even more complex than divorces involving spouses. Most corporate divorces include negotiations between parties who were once quite close, a complexity that often inflames attempts at negotiation.
Traditionally, a commercial divorce entails the court ordering the dissolution of the corporate entity used by the parties; however, it is not always possible to end a corporate partnership through a court order. Sometimes, a frustrated business partner needs to employ additional strategies to bring about the separation. When applied correctly, these techniques can build leverage and force a more productive resolution.
The structure of the company and the parties’ written agreements will determine if a business divorce is feasible and, if not, what other methods can be used to compel a practical end to the relationship.
How to Prepare for a Business Divorce
If you are thinking about getting a business divorce, there are a few things to think about before acting. Determining the objective or end goal should be the first step. Know exactly where you want to be when the process is complete. Do you desire total separation? If the intention is to change the economic relationship but you choose to stay in a commercial partnership, are you comfortable with that? Do you simply want damages to make up for losses but are willing to maintain the current relationship? Before taking any action, these questions and more should be addressed in order to create a more effective approach.
Next, you should know how it will cost the business if a party is trying to survive the business divorce. Meaning, if one party wants to keep going with the business, is it financially feasible after paying for the separation process? Or, if this isn’t the case and all parties want a total separation and dissolution, what do they need to pay to make this happen, and who is responsible for paying? It is important to answer these questions before going through with a business divorce.
Making it Through a Business Divorce
Sometimes a partner wants to leave a partnership after it has been successful in order to take on a new challenge. Other times, animosity has intensified to the point where it poses a risk to the company’s capacity to function.
Whatever the reason, sometimes a partnership must cease to exist regardless of the reasons. The path to dissolution will be far simpler for partners who plan in advance for the potential of a breakup than for those who are caught off guard. If you plan in advance during entity formation, numerous difficult choices, such as how to divide ownership of assets, client lists, and intellectual property, and how to value shares, were already made in the past. Decisions like these are contemplated in a contract known as a partnership agreement.
It is generally rational and even wise to have precise, understandable language concerning processes, protocols, expectations, and departure procedures for a business. Partners should review a partnership agreement frequently as the business relationship will experience growing pains and mature, therefore possibly necessitating amendments and updates to ensure that it accurately reflects any changes that have happened since the last update. Such an agreement may help when the parties consider a business divorce.
What Happens to a Business After a Business Divorce?
A business divorce can be more complicated than a regular divorce. There are frequently considerable assets (or debts) at stake, and it is likely that just one partner managed the company to a major extent. Those involved have invested time, effort and capital in the business which means the potential discord between the business partners can escalate to such an extent that it becomes difficult to impossible for them to resolve their issues.
The remedies to a business divorce include:
- Dissolution: Sometimes there is no choice but to dissolve the business entirely.
- Buyout: One partner can buy out their other partner or partners according to the terms of the partnership agreement and ownership is transferred.
- Sale: Existing owners sell the company to an outside buyer.
- Liquidation: All business assets are sold and the profits are distributed to the owners.
The Business Divorce Attorneys at Berg Plummer Johnson & Raval, LLP
The knowledgeable attorneys at Berg Plummer Johnson & Raval, LLP are committed to offering businesses the thorough guidance and support they require at all stages of the business lifecycle. This includes the end of the lifecycle, such as a business divorce. Call (713) 526-0200 or fill out our online form for more information.