Dealing with a Business Divorce
When business partners decided to part ways, a number of considerations need to be evaluated. Partners need to think about whether a business will continue to operate without one partner, and how to compensate a departing partner for the time and investment they dedicated to a business. In addition, partners need to decide if there should be restrictions on the departing partner so that this person cannot compete against the business in the future. Nevertheless, dealing with a business divorce can be much easier if parties understand the basic elements of many agreements to dissolve a business partnership.
Agreements
A number of documents must typically be negotiated between the parties when dealing with a business divorce. Generally, there is a global document that governs all of the rights and responsibilities of the parties to the business divorce. This document usually covers what will happen if the contract is breached and how the partners will proceed to dissolve their business. Another common document that is negotiated during business divorces is a membership transfer agreement or a shareholder purchase agreement. This allows the remaining partners to buy out the shares of the departing partner so that the business can continue operating. A further document that is often negotiated during business divorces is an asset purchase agreement. This contract governs the sale of assets owned by the departing partner. When dealing with a business divorce, carefully consideration must be paid to a number of provisions of these agreements in order to achieve the best results for the partners.
Non-Disparagement
One of the most important provisions that are negotiated when dealing with a business divorce are non-disparagement provisions. This language ensures that both parties do not disparage one another in the business community. Sometimes these agreements are bound to a certain amount of time, but in other instances, the provisions are unlimited when it comes to time. In any case, it is very important to be careful when negotiating such provisions.
Former business partners will invariably need to discuss their former business when seeking new jobs and opportunities. As a result, it is important to ensure that former partners can discuss their former business experiences without disparaging former partners. A skilled attorney will be able to draft the appropriate language that should give former partners the flexibility they need in order to safeguard themselves against disparagement while ensuring they can adequately discuss their former dealings.
Payouts
One of most important considerations to keep in mind when dealing with a business divorce are the terms of any payouts. Oftentimes, when one person will continue to operate an existing business and one partner will depart, the departing partner may require the other partners to pay them out. This typically comes in the form of a lump sum payment and payments over time. However, there are a number of issues that must be considered when assessing such payments. For instance, taxes may need to be paid on payments, and certain payment structures may be able to reduce tax liability. In addition, payouts can lead to liquidity issues in a business, which can threaten a business’ ability to make future payments. A skilled business lawyer will be aware of all of these issues and ensure that partners have the best chance at receiving equitable payouts for the investment and good will they contributed to a business.
Solicitation of Customers or Clients
Another hotly-contested subject when dealing with business divorces is solicitation of clients. Oftentimes, shareholder agreements or operating agreements will already deal with what happens if one partner leaves a business and decides to depart the company. However, if there are no preexisting agreements in place, parties need to decide how they will divide clients. This is easier in some businesses than others. For instance, professional businesses typically associate a partner to each client or customer that is originated for the business. Of course, if a department partner is leaving so they can retire, solicitation of customers or clients in not a major issue. However, in a variety of situations, solicitation of customers or clients can be a sore subject when dealing with a business divorce.
Sentiments of the Parties
One of the most important things to keep in mind when dealing with a business divorce is the sentiments of the parties. The Rothman Law Firm has learned from dealing with a variety of business divorces that there is often bitterness and grudges that can arise when business partners decide to part ways. Some partners may feel that certain partners did not carry their weight when it came to running a business, and this could be frustrating to the other partners. In addition, the escalation that often leads to partners decided to part ways can make it difficult for the parties to compromise to find solutions to best deal with issues that arise during a business divorce.
Although The Rothman Law Firm has substantial experience dealing with business litigation, and is prepared to take business divorces to court, we always strive to reach a compromise between all parties before filing a lawsuit. In this way, the parties can keep their disputes private and try to minimize the costs associated with dissolving a partnership. If you are dealing with a business divorce and need a New York and New Jersey business lawyer to help you deal with the situation, please feel free to contact The Rothman Law Firm to request a free consultation.