Business Divorce 101

What is Business Divorce?

A business partnership is a lot like a marriage in many ways. Two or more people who co-own a company come together to work in harmony in order to help grow the business and accomplish set-out objectives. Business partners should trust each other and agree on all decisions made for the benefit of the company, however, just as married couples drift apart over time and eventually file for divorce, the concept of a business divorce is rather similar.

When business partners can no longer get along for personal or professional reasons, going their separate ways might be the optimum solution. A business divorce, however, may often be more complex to resolve than a marital divorce. Large-scale businesses that have multiple partners or owners that possess substantial assets can expect a massive change or restructuring after everything is divided between multiple former owners.

Common Situations that lead to a Business Divorce

The decision to initiate business divorce proceedings can be made mutually on friendly terms where the partners agree on all the terms between themselves. Or it might be a messy situation that needs the involvement of an external party like a civil litigation attorney who specializes in business divorce.

It is possible that that the business partners want to part ways because they want to accomplish different things and do it independently. Or it may be that one partner simply wants to retire and use their share of proceeds to live out their retirement life comfortably. Nonetheless, the majority of business divorces in the U.S occur as a result of one or more of the following situations:

Difference of Opinions

The norm for most businesses is to either have a majority owner or co-equal owners. If there is a difference of opinion regarding the business that the co-owners cannot get on the same page for, then potential conflicts can arise with regards to the way forward, and if it is serious enough, it is not impossible that the decision will be made by one more parties involved that the best resolution to the conflict is to go separate ways, leading to a business divorce.

An Unclear Vision

Most business owners and partners are often quite sure of themselves and confident about their plans for the business during the early stages. However, things hardly ever go according to plan. Soon enough what might once have been a clear vision or plan of action on how to take the business to great heights will turn out to be incapable of withstanding the hard and harsh realities of running a business.

When this happens, if the vision and resolve of the partners are not strong enough to weather the storm, then the potential for conflict to arise is very strong and if becomes very severe, walking away from the business might be the only feasible or best option.

Financial Disputes

Money issues are arguably the biggest contributor to conflicts that arise within a business. The phrase ‘money issues’ is used in a broad sense to range from situations where the business is not generating enough revenue thereby putting a strain on the business, to situations of financial impropriety conducted by a partner.

Whatever the type of money issue that has arisen in a business, if the partners are not able to amicably resolve it, sooner rather than later, then there is a possibility that it may fester to the “point of no return.” This is even more so when it involves a substantial sum of money.

Lack of Responsibility Ownership

Yet another source of conflict that can sometimes arise between partners in a business is when one partner does not put in their fair share of the required work and/or does not take responsibility for their actions, or lack thereof, especially if these actions or inactions lead to a very negative consequential outcome.

Incidents of this nature that are one-off are unlikely to lead to a desire to quit the business relationship. But where there is a trend then in all likelihood, it is not impossible that at some point one party will want out of of the business.

Personality Differences

It is inherent in human nature for people to be different. The differences that people have in their personal lives can and will often be transferred into the business environment. Under “normal” circumstances such differences are usually not problematic, and in fact, they can add to the diversity of a workplace that if channeled properly can be a positive for the business.

If, on the other hand, such personality differences are so extreme and on the negative side of the spectrum, such that it begins to cause major disruptions to the business, then at some point ways will be found to get rid of the source of the negativity.

Examples of such personality traits that can prove problematic in a business environment include people with extreme anger issues and substance addiction.

Lock Out

Your partner may literally, or figuratively, lock you out of the business. This could mean that you are restricted from entering the physical premises of your company, or simply excluded from important decisions for whatever reason. In such situations, you will want to discuss the situation with a business lawyer if to find the best way to resolve the situation, which might include things like reviewing the company’s operating agreement.

A Failing Business

Notwithstanding all the above-mentioned factors, at the end of the day, if a business is not doing well for whatever reason, and if all efforts have been made to turn things around without any success, then the owners might have no choice but to come to the decision of calling it quits on the business.

Things to Consider before finalizing the Business Divorce

Business divorce can be extremely hard and complicated where more than two parties are involved. A 50-50 partnership may be easier to break up.

Just like marriages, many business issues can be resolved amicable and/or with the help of an external party like a mediator or business coach. But for this to even have a chance of succeeding, all parties need to be willing to try and make it work. This, of course, will mean each party being willing to own up to their role that led up to the situation that brought up the topic of a business split and being willing to work towards addressing the issues.

Business litigation is stressful, time-consuming, and expensive. You can save yourself from a great deal of trouble if you and your partner can reach a settlement out of court. Have a frank conversation with your partner and preferably bring a mediator to assist in negotiation.

About the Author
This article was brought to you by the business attorney from our law firm who is very skilled in the various aspects of business law and is ready to assist you with whatever you need in your small business.


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