Business relationships are like marriages. When partners cannot resolve their disputes and decide to go their separate ways, a business divorce can be just as emotional, legally complex, and contentious as a divorce between spouses.
While the key to protecting your interests in a business divorce is having well-drafted agreements, bylaws, and documents in place, these necessary, important documents are sometimes not enough to ensure an amicable split-up. If you and your business partner wish to end your joint venture, be aware that a number of issues need to be considered before taking that final step.
Issues to Consider in a Business Divorce
Specifically, the term “business divorce” refers to the negotiations and legal proceedings associated with ending a business relationship between two or more partners. This process may include dissolving an entity. Disputes arise between partners for any number of reasons ranging from greed, disagreements concerning operations, fraud, concealment of information, inappropriate use of business resources, lack of capital, or too much capital. Sometimes, partners can resolve their differences. Other times, parting ways may be the only option.
Before proceeding with a business divorce, partners should consider whether there is an efficient way to exit the company, as well as the following issues:
- Which assets will need to be split up — The company’s assets must be identified, including any vehicles, real estate, electronics, furniture, and other types of property.
- Who owns the assets that must be divided — It’s crucial to consider whether the company’s physical assets are owned by the entity or by one of the partners. Business assets should always be held in the corporate name, but if everyone did everything correctly and by the book, my colleague Mr. White would have far less to do on his side of the practice.
- Whether the company owns the intellectual property — When tallying the assets, and determining which assets need to be split up or assigned to one or another party, it’s essential to understand whether the intellectual property owned by the company is subject to any licensing agreements.
- Their respective stakes in the company — A partner should know what their stake is in the company to ensure all assets are considered in a business valuation.
- The company’s liabilities — A partner should understand the company’s liabilities to determine whether the best approach to the business divorce is litigation, mediation, or another form of alternative dispute resolution.
Business partners must also understand their judicial and non-judicial rights when the company is dissolved. These rights can vary based on the type of business structure and the governing agreements. For instance, some agreements may include buy-sell provisions, forum selection clauses, or requirements for which liabilities must be satisfied during the dissolution process.
Resolving a Business Divorce
In business, it’s crucial to plan ahead — and the best time to prevent a messy business divorce is before it becomes inevitable. Even if partners share the same vision and desire to achieve the same objectives at the outset, a solid business agreement should address any potential events and scenarios that could arise during the course of a company’s existence. A poorly drafted agreement can make a business divorce far more painful than it otherwise could have been.
In some cases, a business divorce can be resolved through mediation or negotiation. But in others, it may be necessary to litigate in court. Although reaching a settlement outside of court can be efficient and cost-effective, if an agreement cannot be reached, litigation may be the only option. Critically, because the resolution of a business divorce typically focuses on the valuation of the company, an accurate business appraisal is paramount.
Contact an Experienced New York Business Attorney
If you and your business partner are looking to part ways, it’s crucial to have the representation of a skilled business attorney who can advise you regarding your options and protect your rights. The New York business attorneys at Brinen & Associates are dedicated to offering high-quality legal services for a wide variety of business matters, including business divorce. Call (212) 330-8151 or send us a message to learn more about how we can help.