In a perfect world, all companies would reach their full potential, and no business partners would ever split. Unfortunately, in the real world, business partners often need to seek a corporate divorce for a variety of reasons.
If you find that you are one of the many Florida entrepreneurs looking for a business divorce attorney as you separate or wind down your company, we can help.
“Business owners put time, money and energy into building their businesses, just like a marriage. That can make separation of business partners challenging and emotional.”Michael Long, Business Disputes Attorney
In this blog post, the BrewerLong team will walk you through the five things to know about business divorces. We’ll explain what they are, when they work best, and how to negotiate one as smoothly as possible. Our experienced team of Florida business lawyers will also provide a checklist for you to keep on hand if you ever find yourself in the unfortunate position of needing a business divorce.
#1. What Is a Business Divorce?
A business divorce is surprisingly similar to the end of a marriage. Just as a marital divorce is a legal process by which spouses split up and divide their assets—business divorce is the legal process for business partners to end their relationship and equitably separate the company’s assets. Depending on the form of business entity, typically, one partner sues another to dissolve the business entity or remove themselves as a member. The Process can be quite emotional, depending upon the circumstances surrounding the need for the business divorce.
In some cases, a business divorce coincides with a regular divorce. This usually happens where the business is a family business. Speak with an experienced business divorce attorney if you are considering ending your business relationship. A lawyer can help explain whether and when to commence a corporate divorce and how it can be best handled.
Some examples of when you might seek a corporate divorce are when there is no possible way for you and your partners to continue running the business together. For instance, the relationship between you and the co-owner of your jewelry shop has deteriorated to the point where they have locked you out of the safe. As a result, you can no longer retrieve your clients’ gems. In this case, seeking a business divorce right away may be essential to prevent your clients from accusing you of theft.
In a more common circumstance, perhaps after 20 years of having their nose to the grindstone, your partner has simply decided they want to move to Sedona, Arizona, and paint landscapes. Unfortunately, their absenteeism and frequent painting trips to remote locations have made running the business without them impossible. In this case, it may be time to separate the assets of the business and go your own separate ways.
#2. When Is a Corporate Divorce the Best Option?
A business divorce is necessary when the business partners can no longer trust each with ownership and management of the business. In dire circumstances, a court may be required to order the business to be completely dissolved. A full and complete business divorce like this can be the best option for you in a few circumstances, including:
- When you don’t expect to have any relationship with your partners going forward;
- When the business itself is unsalvageable, and you only want your share of the assets; and
- When your company by-laws, articles of organization, or partnership agreement allow or require this.
Check your own organizing documents and applicable state laws as you evaluate your options. Sometimes, your own corporate documents will let you know exactly what you need to do. And be sure to consult with a business divorce attorney if you have questions. Corporate governance documents can be confusing. They are often written in legal jargon and depending on the state, several different “amended and restated” copies may exist. So be sure you have the correct version as well.
#3. What Do I Need to Know Before Considering a Business Divorce?
Weighing Risks vs. Rewards
Before considering a business divorce, you’ll need to know everything about your company’s governance and balance sheet. Depending on how your company is organized, a business divorce may saddle you with a lot of liability and little control. Understanding your balance sheet can help you understand whether leaving the business could leave you with a pile of liabilities.
Sometimes, a business undergoes a corporate divorce where one partner “divorces” a company, but the business remains an ongoing concern. Depending on how the company was structured, the departing partner could unwittingly retain some personal liability for the company’s debts. If the partner completely divorces the business, they would not have any control over how their former partners spend corporate assets once they are gone. That is a position no one would want to be in, no matter how much they wanted to run off to paint desert landscapes!
Understanding Governance Documents
As mentioned above, if you are considering a corporate divorce, you need to know what your company’s governance documents say. Not only will they explain whether a corporate divorce is a good idea and map out how you can affect it, but they can also tell you what to expect once a divorce is underway. Often, the lawyer who helped you create your business entity thought a little bit about what might happen if you had to wind it down. Speaking with a lawyer can help you get a good handle on the business separation process.
#4. Are There Alternatives to a Business Divorce?
There may even be good alternatives to a business divorce, depending upon your own unique circumstances. Before engaging the court system to divorce your business partners, consider these alternatives:
- Mediation, or
- Non-binding arbitration.
By choosing alternative dispute resolution, you and your business partners may be able to find novel solutions to the problem of separating your business. Alternative dispute resolution also provides the parties a meaningful chance to be heard face-to-face. For many former business partners, this is preferable to undergoing the costly, time-consuming, and invasive process of discovery. Often, choosing alternative dispute resolution saves the business money as well.
#5. Checklist For Navigating a Corporate Divorce
Unfortunately, not all corporate splits can be avoided or resolved outside of the legal process. If you find yourself in a situation where a business divorce is inevitable, we have prepared this checklist to keep you on track as you mentally prepare to separate your business.
Set Your Goals
Setting goals early in the process can help keep you focused on what is next and what matters most. What do you want to achieve by divorcing your business partners? Are you eager to shut the door completely on that business? Would you be willing to be bought out of the business gradually, on a set schedule? Consider your main goal as well as some acceptable alternatives.
Set a Budget
A corporate divorce can be as costly as the end of a marriage. Business splits can be just as emotional as marital breakups, too. And the more each party digs their heels in, the longer and more painful the break usually becomes.
So before the proceedings commence, be sure to set a firm budget and stick to it. It’s not worth the emotional or financial cost to bankrupt yourself in the process of dissociating yourself from the business.
Set Your Expectations
Once you have goals and a budget set, you may need to recalibrate your expectations. If you have lofty goals of walking away from liability for your business but expect to pay very little for that—you may need a reality check. Going into the business divorce process with an open mind can help you keep your goals and budget in line. When expectations and reality match, you are much more likely to be satisfied with how your business divorce turns out. A trusted Florida business divorce attorney can help you set goals, a budget, and expectations for the process.
Set Your Path
Now you’re ready to blaze a new trail! Just remember—no matter how hard the break-up process is—you are an entrepreneur! You built a company out of nothing once, and you can do it again. Your business divorce will not define you if you don’t let it. Keeping a positive outlook and a forward-looking mentality is a key to surviving a corporate divorce and thriving afterward.
How BrewerLong Can Help
Don’t let business differences leave you unprepared for a business divorce! Sometimes, of course, a corporate divorce is necessary and is the only thing that allows the parties to separate. However, to get this kind of separation right, you need an experienced business divorce attorney on your side.
The attorneys at BrewerLong have been advising clients on all aspects of business formation and dissolution for decades. We’re experienced transactional lawyers and litigators who will fight for you whether we are creating your company or helping you take back your piece of it. Contact us today to see how we can help you.
This blog post is provided on an “as is” and “as available” basis as of the date of publication. We disclaim any duty to update or correct any information contained in this blog post, including errors, even if we are notified about them. To the fullest extent permitted by law, we disclaim all representations or warranties of any kind, express or implied with respect to the information contained in this blog post, including, but not limited to, warranties of merchantability, fitness for a particular purpose, title, non-infringement, accuracy, completeness, and timeliness. We will not be liable for damages of any kind arising from or in connection with your use of or reliance on this blog post, including, but not limited to, direct, indirect, incidental, consequential, and punitive damages. You agree to use this blog post at your own risk. Regarding your particular circumstances, we recommend that you consult your own legal counsel–hopefully BrewerLong.