Jun 10

Do you need a business divorce?

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Not only marriages fall apart. Business relationships often curdle as well, as a result of disagreements as to the direction of the business, concerns about management’s use of business resources, or personality riffs. If a business is public, it is easy for an investor to sell his or her interest and walk away from the venture. But in the case of non-public companies, sometimes the only way to get money out of a failing or dysfunctional venture is to head to court for a dissolution (referred to as a “business divorce”).

Of course, as in the case of family divorce, heading to court may not be the best solution. After all, litigation is often time-consuming and can be expensive. If the parties can agree to divorce amicably, divide their assets, and move on in separate directions, then the court process can be avoided. But even in these cases, guidance from an attorney can help the parties to be sure that the division of assets is fair and final, so that the exiting party is not left on the hook for future liabilities of the business.

Moreover, unfortunately, sometimes what starts as an amicable parting of ways becomes messy and difficult, especially where the parties can’t agree on valuation or if there is suspicion or evidence that one party has acted improperly either by misusing company assets or by making decisions that are detrimental to the business. That’s why it is important, especially for a party with a minority interest, to be sure to have an experienced attorney guiding the process.

One way to lessen the headache of a business divorce is to plan ahead with a business “pre-nup.” The Operating Agreement, Shareholders’ Agreement, or other operative document for the business should describe how a minority interest holder can exit the business and provide a procedure for valuing the interest upon exit.

If you are in need of a business “pre-nup” or divorce, contact us at Felicello Law P.C. (info@felicellolaw.com).