Business Divorce: How to Break Up with Your Business Partner Without Destroying the Business – Part II

This is a continuation of a prior article by Navigant Law Group discussing discuss how to break up with your business partner without destroying the business. That article can be found at: How to break up with your business partner without destroying the business part II

As we discussed, while most businesses are started with the best intentions, not all businesses or business relationships work out. According to the various available statistics, between 50% and 70% of business partnerships do not last for a variety of different reasons. The following are a few things to keep in mind when considering terminating your relationship with your business partner.

Consider All of Your Alternatives

There are a number of different ways for a business relationship to end. Everyone has heard stories about bitter fights between former partners which result in the death of a business and turn lifelong friends turned sworn enemies.  However, that does not have to be the way it is. Equally as often, business partners are able to separate without any (or very little) animosity and are able to continue to interact socially.

When someone thinks of a business break-up, they often have an image in their head of two owners, each going off in their own separate direction, with the business left behind, abandoned.

However, instead of abandoning the business, steps can be taken to allow one (or more) owners to continue to operate the business (or portions of it). There are alternatives available that may solve your problems without ending the business relationship or killing the business.

One of the advantages to involving an experienced business attorney is that while there are several standard methods for handling an owner’s separation, a customized solution can always be crafted that addresses the issues faced by your business.

Make a Decision and Stick to It.

Once a decision has been made, stick to it. Waffling back and forth does not help any, especially the business. Dragging the process only causes more damage and usually increases the costs as well. Numerous articles can be found online which discuss the effects of instability on employees and on business profitability.

This does not mean make a rash decision. It is important to carefully consider all of the available options and the consequences of each before making a decision. An experienced advisor can help with identifying the available options and weighing the consequences of each.

It is equally important that research be done to make sure that decisions are made based upon accurate, complete, and timely information. If old, incomplete, or incorrect information is used, this could place the user at a disadvantage (e.g., using outdated financial information to negotiate an exit price, lack of knowledge about a potential liability, etc.).

Set Deadlines

Parties often find it helpful to set either a single deadline, or a series of deadlines, for the completion of the separation or other transaction. These deadlines can be the time at which time certain information is due or by which certain actions need to be taken.

Setting deadlines helps to ensure that everyone is moving forward towards the goal and that items related to the goal are addressed in a manageable fashion (in bits over time instead of all at once). A business break-up, and all the issues that go along with it, can be a bit overwhelming, but having a schedule for addressing the issues one at a time can help make the process easier. In addition, having a schedule to show (and proof that a party failed to meet the set deadlines) can be useful later if problems arise and the parties end up in court.

Address Potential Issues

Equally as important as researching to make sure that the information used during the break-up process is accurate and complete, is the practice of making sure that any potential claims or issues related to the business, both those issues which currently exist and those which can arise in the future, are addressed in the separation documentation.

Most business owners are familiar with the theory of liability and are aware that they can be held personally liable in certain limited situations. However, most forget that they can also be held liable for their actions by their fellow business owners (or by the business itself).

If a business relationship is ending or a business closing, it is important to know if anything is lurking which can come back later and cause issues.  No one wants to be surprised with a liability claim years after separating from a business. Luckily for business owners, these issues, both existing and potential, can be addressed in a number of different ways, from escrowing funds to purchasing insurance.

If such are a concern for you, it is recommended that you consult with an experienced attorney so that language can be drafted which identifies those claims which have been addressed (and those which have not) and details how such are to be handled.

Get Professional Help

A business break-up is not that different from a regular break-up (or divorce). In fact, it can be harder as there may be more people involved in the process and more assets that have to be dealt with.

Navigant recommends obtaining the assistance of experienced professionals to help guide you (and your business) through the break-up process. An attorney or other professional experienced in dispute resolution may be useful in helping the business owners work through the current issues and develop a plan for separating.

In addition to assisting the involved parties thorough the business break-up process, an attorney, unlike other third parties, can help formally document the end of the business relationship and navigate any other related issues (e.g., obtaining financing to fund the buying out of a partner, securing departing party’s release from existing guaranties or other business-related contracts, etc.).

At the end of the day, only you can decide if it is time to break-up with your business partner or not. Due to the potential impact of business break-up, it is not a decision that should be made taken lightly or made quickly. Should you have any questions about potentially ending a business relationship or alternatives to ending a business relationship, or would like to schedule a free initial consultation, please contact Navigant Law Group, LLC at (847) 253-8800 or contact us online.

Navigant Law Group, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Litigation, and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, and Guardianship.

This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.