Legal-Ease: Business divorce

I represent many businesses and business owners. Frequently, when people have a business idea or organize a new venture, they involve me. Similarly, people also call me when a business or the people within a business are not effectively interacting or producing expected outcomes.

Because of my background in FFA, 4-H and business, I probably focus more effort than other attorneys focus on relationships among business partners and stakeholders. When a business is struggling, that struggle can cause friction among co-owners. However, sometimes, friction among co-owners can itself cause a business to struggle.

Challenging situations are not always reasons to secure a business divorce. However, less than ideal situations sometimes present more than enough justification for a business divorce. Whether businesses or people within businesses should “divorce” depends upon the business, the people, the people’s histories, and the people’s goals and expectations.

The first step in analyzing a dysfunctional business that may need a divorce is to determine what the business is doing. Who specifically is doing what? How has the business operated in the last several months and years? Who makes what decisions? What is the business’s trajectory?

Second, to determine whether a divorce is justified, the people and their communication must be analyzed. If people communicate differently, those differences can sometimes be remedied. If one person does not communicate at all, it is likely that the situation cannot be remedied, unless the communication has only recently stopped. The people involved will define whether the business, as currently constituted, can remain in existence. And, often, their communication strengths and weaknesses are their most determinative traits in this context.

Similarly, a close look at the affected people’s histories and their respective goals clarifies whether the business relationship was the equivalent of a one-night-stand or a potentially permanent union.

The legal side of untangling a business relationship and facilitating a business divorce can be complex and usually must involve accountants and attorneys. Sometimes, one party can buy out the other, allowing one or more partners to continue the business.

Some businesses cannot financially facilitate one owner buying out the other, and those business divorces often result in the business’s liquidation or sale. Of course, liquidations of businesses usually present tax challenges and significant life changes for people who may have previously owned and operated the businesses.

Some business divorces result in two or more similar but separate businesses that take on different aspects of the initial business. For example, some contemporary, commercial farm operations will separate into a trucking operation and a grain operation. Other businesses that divorce actually become competitors with each other.

Deciding the basics of “who gets what and what goes where” does not necessarily require attorney involvement. However, the advice of experienced business counsel can simplify and expedite the process.

Nonetheless, the details of a business divorce should be as thoroughly or more thoroughly documented than the business’s start-up agreements. Employing a local attorney is strongly advised to ensure proper memorialization of all business divorce terms.

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Lee R. Schroeder R. Schroeder

By Lee R. Schroeder

Contributing Columnist

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-523-5523. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.