Stop The Heartache Before It Starts: Simple Steps For Reducing The Likelihood Of Business ‘Divorce’


It doesn’t matter if you’re ending a personal relationship or a business partnership. As the old song says, “breaking up is hard to do.” And while there’s no guarantee that you and your significant other, spouse or business partner(s) will always get along, the good news is that there are simple things you can do to reduce your chances of getting involved in a nasty “business divorce.” Here are just a few tips to keep in mind.

First and most importantly, make sure you create a comprehensive shareholder, partnership and/or operating agreement to begin with. These documents serve as the foundation of your business, and as such should address any and all eventualities.  In other words, a well-crafted agreement should set forth exactly what will transpire if and when a dispute between partners or shareholders arises.

For instance, make sure the agreement includes stipulations for what will happen if one or more parties will continue to operate the business after the other(s) leave. These may include, but are not limited to non-disclosure and confidentiality agreements, non-compete and non-disparagement agreements.

Of course, the provisions in these agreements won’t do any good if they can’t be enforced due to changes in case law or business statutes. So don’t take it for granted that the stipulations in the initial agreement will always be valid. Ask your business attorney to review the document(s) from time to time to ensure that they’re still enforceable and make any changes when need be.

Speaking of your business attorney, you can rely on them for more than just resolving disputes. An experienced attorney at Loshak Leach LLP may also be able to provide much needed insight into the operational and financial ramifications of a “business divorce.”

If you are concerned about the tax implications, an experienced business attorney can also advise you about the effects of a complete or partial liquidation, substantial change in ownership, recapitalization or similar changes resulting in multiple entities.  Once that’s been done, he or she can offer advice about who should be held responsible for payment.

Another important “rule of thumb” to keep in mind is that it is sometimes prudent to avoid doing business with friends or family. All too often, these relationships conflict with running a successful business and commonly lead to conflicts of interest. If you insist on having this type of business arrangement, it is crucial that you are fully aware of your legal rights and obligations. In these situations, it is also important that you don’t forget who you are in business with, and what their real reasons for joining the business may be.

Even in a best-case scenario where there are no disputes over any relevant issues, a dissolution plan should be prepared to ensure legal closure.  This is especially important if the business is being liquidated because assets are distributed and the books are closed during this process. It is also important to ensure that applicable steps are taken with the Florida Department of State and that creditors are notified accordingly.

These are just a few of the precautions you can take to reduce the chances of getting involved in an ugly – and expensive “business divorce.” To learn more about how we can help protect your business, contact an experienced business attorney at Loshak Leach LLP today.

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