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Business Divorce: What Should Owners Think About When Splitting Up?

Business partners are like marital partners in many ways. And like marriages, business relationships can break down. A split up among company owners, often called a business divorce, fundamentally alters the business’s structure and may directly impact its commercial livelihood. For the good of the company and the people involved, the owners should act swiftly but thoughtfully to bring about a smooth transition. 

In the best-case scenario, the business divorce can proceed under the terms of a buy/sell agreement, which can be signed upon the creation of the business and amended when additional owners join an existing company. A good buy/sell agreement will provide a well-defined path for removing an owner, specifying how to value the departing owner’s interest and how that value will be paid.

A business divorce is more complicated when no buy/sell agreement exists. One option in such a case is for the shareholders to negotiate — usually with the help of their attorneys — for a voluntary buyout. The shareholders who will remain with the company can be creative in paying off the departing owner. For instance, they could agree to pay royalties tied to the company’s future performance. This arrangement offers the departing investor a potential upside if the company performs well, rather than just one lump-sum buyout amount.

Whether you are a majority or minority shareholder, you should be prepared to work through issues such as these when going through a business divorce:

  • Taxation questions
  • Employment law matters
  • Intellectual property ownership
  • Potential minority shareholder oppression
  • Contractual dispute among co-owners and with outside vendors and suppliers

Dealing with these issues may require retaining business valuation experts to assess the value of the company and hiring accountants and other financial specialists to scrutinize the business’ books.

In preparation for a business divorce — whether imminent or merely a possibility — you should align yourself with a Texas business litigation attorney. You’ll want a lawyer who has handled diverse cases involving, for example, cases of business partners neglecting their duties, partners in dispute over the company’s direction, partners declaring bankruptcy and any number of other situations that can put untenable strain on a closely held business.

Based in Dallas, the Law Office of Paul R. Clevenger helps companies and their owners resolve business divorces with minimal stress and disruption for all involved. As a business owner myself, I understand the need to resolve disputes efficiently and cost-effectively. Please call 469-212-9764 or contact me online to arrange a consultation.

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