What Partners in Closely Held Businesses Need to Know About Splitting Up

Unless you have a business that is a sole proprietorship, you will most likely run into disputes with your partners or other business co-owners in the course of the life of your business.

Sometimes business disputes between partners or co-owners get to the point where one of the partners no longer wants to resolve the issue and instead says she wants to leave the business.

This can be especially difficult when the business partners are close friends, or in some cases family members. You do not want to have a business divorce ruin a relationship with a friend or sibling if it can be at all avoided. In closely held corporations, business partners deciding to split up can drastically alter the nature of the business and its ability to function if the business divorce is not handled carefully.

Business divorces—meaning when business partners split up—can be extremely complex and difficult to navigate. It is important to work with an attorney who has experience with business divorce matters and who can help you to negotiate your business separation and to move forward in a way that is reasonable and even favorable to you and any other shareholders in the company.

At Wood Edwards LLP, our attorneys have experience assisting clients in Texas with shareholder disputes and business divorces, and we are ready to begin developing a strategy for you today.

Signs of an Impending Business Divorce

There are many different kinds of business structures that can face an impending business divorce. Partnerships are generally the simplest type of business for two or more individuals who are starting a business, according to the U.S. Small Business Administration (SBA).

In both limited partnerships (where one general partner has unlimited liability and the other partners have limited liability), as well as in limited liability partnerships (where all owners have limited liability), disputes can arise. Similarly, owners of a limited liability corporation (LLC) can get into disagreements about the business, and one of the owners can decide to leave.

According to an article in Entrepreneur Magazine, the following are common signs that a business may be headed for a business divorce:

  • While all partners in theory have balanced duties in order to run the business, there is a general sense that one of the partners is not carrying his or her weight, leaving the other partner(s) with the majority of the tasks necessary to keep the business afloat;
  • Partners are disagreeing about fundamental features of the business; and
  • Partners have drastically different working styles, which are in conflict with one another.

Business Divorces Can Be Speedy and Successful

The goal of any business divorce should be to obtain a quick, effective, and reasonable resolution for all parties involved. At Wood Edwards LLP, we use our experience representing clients in business divorces and business dissolutions to handle your complex situation. For example, our business law attorneys have experience with the following issues surrounding business divorce:

  • Working with business valuation experts to assess the value of your partnership;
  • Hiring forensic accountants and private investigators who can provide key information about your business;
  • Handling tax issues and maximizing benefits when co-owners of a partnership or LLC split up;
  • Managing employment law matters surrounding business divorce, including firing practices and unresolved complaints;
  • Assessing minority shareholder rights and laws surrounding minority shareholder oppression;
  • Negotiating terms for co-owners; and
  • Handling outstanding contracts among co-owner, as well as outstanding contracts with contractors, suppliers, purchasers, shippers, and other individuals involved in the operation of the business.

Managing Your Business Divorce as Painlessly as Possible

At Wood Edwards LLP, we want to help you to manage your business divorce as painlessly as possible. Typically, negotiating a business divorce with terms that are agreeable to the partners is the best way to resolve your dispute efficiently and to avoid litigation.

The Entrepreneur Magazine article emphasizes that, with the help of a business lawyer, the following goals can help to smooth over your business divorce and to avoid litigation:

  • Separate your personal feelings from your business knowledge: it is often easy for partners in closely held businesses to take disputes personally, and to attempt to make matters more difficult and complicate for one another. If you are able to do so, it is important to separate your personal feelings about the business divorce—from anger to frustration to sadness—from your knowledge about what is best for your own financial future.
  • Communicate for better negotiations: communication is often key to a successful negotiation. While you might feel betrayed by your partner’s decision to leave the business and your initial reaction might be to avoid communication, it is important to communicate if you want to find common ground and avoid litigation.
  • Know your priorities in the business divorce: with the help of a Texas business lawyer, you can identify issues pertaining to the business that matter the most to you. For example, would you prefer to keep the business intact—even if it will cost you more in the short-term—as opposed to dissolving it altogether? Is a buyout an option you would consider? What are your future professional and business goals? In thinking through these questions and others, you can pinpoint matters that are most important when it comes time to negotiate.

Disputes and Minority Shareholders in a Business Divorce

What kind of say do minority shareholders get when owners of a closely held business decide to split up? In other words, how do owners who do not have a controlling interest in the business get a say in how a business dissolution occur?

These are complicated questions, and these issues often result in tense negotiations during a business divorce. For business owners who do not have a controlling interest in the business, negotiations can be particularly important in terms of getting a fair resolution.

While we have discussed the effects of business divorce in partnerships and LLCs, what about corporations? How does the dissolution of a corporation affect shareholders in a corporation? In short, corporations are much different in terms of business structure from partnerships and LLCs, and their dissolution works quite differently.

Corporations typically can continue to function when one or more of the shareholders decide to leave the company or to sell off his or her shares. In other words, a “business divorce” is not as applicable to corporations as to partnerships and LLCs, as well as to certain other kinds of business structures.

Contact a Texas Business Law Attorney About Your Partnership Dispute

At Wood Edwards LLP, our Dallas business attorneys know that business divorce is complicated for all parties involved. While negotiating a business divorce is often the most cost-effective resolution, we are prepared to litigate your case if negotiations cannot produce an equitable result. Contact us today.