When you need a business divorce, you can break up the business using one of four common methods. Ending a business relationship is never easy, but sometimes it becomes necessary. The method by which you break up the business will vary depending on a few factors. For example, your business formation documents may explain the ways that you can legally get the “divorce”. In the absence of documents, you may need to follow state default rules. Possible ways of getting a business divorce include dissolving the business, selling the business, selling just your ownership share, or buying out your partners.
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Dissolve the Business
Sometimes, partners who decide to get a business divorce would rather dissolve the business altogether than keep on operating. If you would like to dissolve your business, first consult your operating agreement or corporate bylaws. You may need to take specific steps required by the agreement in order to dissolve. For example, the agreement may state that you and your partners will divide the business assets and liabilities according to your percentages of ownership in the business. This could require a business valuation or accounting to determine what your assets are worth.
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Sell the Business
If your business is successful but you and your partners want a business divorce, a sale could be a good option. Selling the business involves determining a fair price, finding interested buyers, transferring ownership, and distributing profits of the sale. Again, your operating agreement or bylaws may provide more detail about how to accomplish a sale. Sales often require business valuations and review of business agreements to determine (1) how much the business is worth and (2) how the partners get paid out. Consult a business lawyer for advice as you begin considering the sale of your business.
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Sell Your Ownership Share
Alternatively, you might have the ability to sell just your ownership share of the business. For example, if you own shares of a corporation, you could sell the shares to someone else. If your business is small and not publicly traded, consulting your business formation documents is crucial when you want to sell. There may be restrictions on sale to third parties, a requirement that you get approval for a sale, or other provisions that affect your plans. Your business lawyer can advise on the consequences of selling only your ownership share in a business.
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Buy Out Your Partner(s)
Frequently, businesses need a “divorce” because one partner dies, becomes disabled mentally or physically, gets divorced, or files for bankruptcy. Many business operating agreements contain provisions for buying out a partner in one of these situations. Unfortunately, agreement language is not always clear on exactly how to accomplish the buyout. For example, your agreement may not explain how to value the partner’s share. It might not give a detailed explanation of when you can force a buy-out. Or it might not explain what happens if the business doesn’t have the available cash to pay for an immediate buy-out. Moreover, what about estate planning provisions or divorce agreements that transfer a partner’s ownership share to someone else? Unfortunately, situations like this often end in court battles.
If you need to buy out a partner because of a change in their life situation like disability or divorce, you should speak with a business lawyer. Your lawyer can interpret the provisions in your business agreement. He or she also will review applicable state law to see how it affects you. Should you need to go to court or arbitration, your lawyer will assist you moving forward. Dealing with a buy-out of a partner could be a very difficult way to get a business divorce without a lawyer’s experienced help.
Help with Business Divorces
As experienced Houston business lawyers, we work with small businesses whose partners decide that they need to break up. Business divorce can be practically, financially, and emotionally difficult. We help our clients find the best solutions possible for their business and themselves. Our advice is tailored to your unique situation, not “one-size-fits-all”. Interested in a consultation? Call 713-940-4500 or use our convenient Contact Form.