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A business divorce is the legal separation, restructuring, or dissolution of a business that results from a professional or personal breakdown between owners or partners. Much like a personal divorce, a business divorce focuses largely on the separation of ownership stakes, assets, responsibilities, management, etc.
Business divorces are usually considered when there’s acrimony between partners or corporate gridlock. Unfortunately, a business divorce may occur because of misconduct by one partner or another, such as self-dealing fraud, secret competition, or other unauthorized use of company funds.
First and foremost, look at your governing documents, such as operating agreements, shareholder agreements, or partnership agreements. In many cases, the legal language used in these documents is analogous to that used in a prenuptial agreement. These agreements may already have anticipated potential scenarios and then describe where parties may go from there.
Generally speaking, options include (a) a negotiated buyout where one partner buys out the other, (b) the sale or dissolution of the entire corporation, or, (c) if an agreement can not be reached, one partner can seek court intervention and potentially a judicial dissolution.
Craig Donnelly is a sharp, proactive business law attorney serving Illinois. Since 2004, he’s helped business owners just like you understand how to initiate a business divorce with care, objectivity, and legal acumen.
Have questions, or in need of business law assistance? Reach out to Donnelly Law, LLC for an initial consultation today.
To determine whether this is possible, look first at your governing documents first. An LLC, corporation, or partnership may be able to sell specific assets, equipment, intellectual property, or real estate to another partner as part of a buyout.
A business could also be split into two separate entities and continue to function in that fashion. Judicial remedies may also be considered as a final resort, wherein the court decides how the company will proceed without one of the partners.
The best way to divide assets, however, is to think ahead when your business is going well and include these types of situations in your governing documents.
Business mistakes generally fall into one of three categories: emotional mistakes, documentary mistakes, and legal mistakes.
Emotional mistakes arise when one partner considers themselves to be the founder or the brains behind the operation and begins to let their emotions drive their legal strategy.
In other cases, during a conflict, one partner will decide, “Well, if I can’t have this business, I don’t want you to have it, either”, and that can lead to very destructive courses of action, such as firing off angry emails to vendors and generally trying to poison the well.
Documentary mistakes can include not having thorough governing documents from the outset that lay out how a business might be transferred from one partner to the other in case of acrimony. Good governing documents should also provide a mechanism for how the business is to be valued and which assets would be divided.
As early on as possible in the life of the business, be sure to get well-worded and clear governing documents written up that explain what will happen to the business and its assets in case of a disagreement or falling out between partners.
Legal mistakes involve not hiring counsel to help you write up governing documents or resolve disputes. An experienced business and commercial litigation attorney can help ensure your documents are sound, clear, and detailed enough to be genuinely helpful should the partnership end.
An attorney should also help you and your business partner navigate the end of your partnership, as trying to handle matters on your own can lead to further complexities and expensive legal snarls.
A business attorney will have gone through this process before. Think of it this way: people don’t generally go through personal divorces without a lawyer. You simply don’t know the pitfalls, and you may be giving up things you don’t have to give up. So why would a business divorce be any different? Hiring an attorney for these types of disputes generally allows for a much smoother ownership transition.
Dissolution can be complex, especially when more than two partners are involved. A lawyer can also help you put together a proper valuation process, handle asset division, and handle allocation.
Finally, the tax implications of dissolution make it incredibly important to have a lawyer assist you with necessary documents to be sure there is a record of exactly what was transferred and at what cost.
For more information on Illinois business divorce and dissolution attorneys, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (630) 274-6196 today.
Craig Donnelly is a sharp, proactive business law attorney serving Illinois. Since 2004, he’s helped business owners just like you understand how to initiate a business divorce with care, objectivity, and legal acumen.
Have questions, or in need of business law assistance? Reach out to Donnelly Law, LLC for an initial consultation today.