Business separations – usually called a “dissolution” – can be very difficult for all of the involved parties. Similar to a divorce, emotions run high, and there is a lot at stake financially and logistically.
Here are four things to remember about your business separation that may help you minimize the emotional and financial turbulence:
1) Importance of a good Operating Agreement that contemplates a breakup
A strong OA provides a roadmap for dissolution of the company and division of the assets. In the absence of a strong OA, there is uncertainty, increased risk, and – often – high legal costs, each of which adds to the already tumultuous environment between or among partners.
2) Don’t lose sight of the forest for the trees
Nickel and diming every detail is rarely a productive exercise. If the parties have already decided that the relationship is beyond repair, then usually the parties are better off getting the separation process behind them, even if some of the negotiated terms are distasteful.
3) Draft a separation agreement
It is a good idea to enter into a separation agreement, even if simple. The agreement should address, among other matters, non-disparagement between the parties, non-compete obligations of the parties, division of assets, and responsibility for liabilities.
4) Protect your rights
Don’t give up anything to which you are entitled under the operating agreement or state law. You have a right to withdraw, so don’t let your opponent use the process of negotiating a separation agreement to take away rights or force additional obligations on you. A common example is tax liabilities. As partners, you are all jointly and several liable for any unpaid liabilities, so, even if you were the partner dealing with the accountants, you are not obligated to carry 100 percent of a potential tax liability.
We highly recommend that you either (a) use your own attorney, or (b) find a neutral attorney, to navigate you through the separation process.
Joseph E. Fournier is an Attorney and a CPA who has more than twenty years of experience in a variety of business legal matters, including start-ups and company formations, drafting shareholder and operating agreements, contracts, employment law, commercial litigation, tax planning and audit defense, and mergers and acquisitions (M&A). He also handles estate planning matters, such as business succession planning, wills, trusts, and probate.