- posted: Oct. 30, 2023
- Todd McMurtry
- Business Law
- business divorce, small business
A business divorce occurs when one or more of the company’s owners or partners leave or is forced out by those with a controlling interest. It can happen for myriad reasons, such as personality conflicts, disagreements on business goals or operating procedures and external changes in economic conditions that hurt the company’s profits. In many ways, a business divorce is like ending a marriage. Assets must be divided and any future obligations among the parties must be decided. The process can be contentious, frustrating and expensive.
However, there are ways to make a business divorce more efficient and less painful. Here are some positive actions that small business owners can take in preparing for a breakup:
- Proactive planning — The reality is that most startup businesses change ownership or dissolve within a few years. However, entrepreneurs often do not often contemplate restructuring or failing. It is critical to enter the venture with an understanding of those risks and to craft a plan of action in case a business divorce becomes necessary. This can be done through the company’s bylaws or operating agreement. These documents can govern how a business divorce will proceed and specify each owner’s rights and responsibilities both during and after the divorce.
- Focus on the process — Some owners take business divorces very personally. They will use the divorce as a platform to blame and berate other owners and as a tool to seek retribution. This is shortsighted, as this type of conflict only makes business divorces take longer and cost more. Every owner should focus on making the divorce as clean and orderly as possible. By doing so, the parties can quickly move on to other business opportunities.
- Hire a mediator — A mediator is an unbiased third party who can help facilitate the settlement of a business divorce. The mediator should be familiar with the company’s line of business and its relevant market. A good mediator will be able to explain the strengths and weaknesses of each party’s legal position, temper unrealistic expectations and increase the chances of the parties negotiating a settlement.
- Be flexible — Whether a business divorce is negotiated, mediated or litigated, no party is likely to get everything they want. Divorcing owners should concentrate on coming to an agreement that is fair and reasonable overall. All owners should be prepared to make some concessions. Every hour spent on the divorce is one less hour available for engaging in productive activity.
An experienced business divorce attorney can advise you about the best options to accomplish the ownership change in your company, whether it involves a buyout of a departing owner, the sale of the owner’s interest or, as a last recourse, the company’s liquidation.
About Finney Law Firm, LLC
Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation. FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.
FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.
For more information about Finney Law Firm, visit finneylawfirm.com.
Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.
