Business Divorce

Business Divorce - a growing problem.

The seed of a business idea stirs within you. Then it haunts you. Every passing moment, you're absorbed by the idea. Then along comes someone who shares your dream. A friend, relative or neighbor. And then the adventure begins: incorporation, office, computer, business cards, advertising, and don't forget to throw in the cash. And the adventure starts with a bang.

You and your partner realize that the company needs to expand. Employees are on the agenda, and you hire a few. The cash begins to roll in! Then, unexpectedly, the venture hits a pothole. The business is may be fine, but the relationship between two friends sours.

There are many things to consider when starting a business partnership, and although it may seem out of context, one of the most important things is to consider at this time is the dissolution of the business. You need to consider what will happen if one partner dies, becomes disabled, quits, gets divorced (what becomes of his/her share in the marital divorce), or if you want to force the partner out of the business because of a financial or work ethic disagreement Can you legally do this?

A business divorce could be caused by any number of reasons - you name it: money's withdrawn by the partner, there is a failure to keep the same working hours, maybe a power grab, a desire for higher salary or just a difference of opinion. When the business is profitable, everything may have been fine; but if money is tight, there can now be arguments and differences of opinion over money and spending and how strict you are in getting customers to pay their invoices.

The business begins to falter. Both partners point the finger at each other. You feel like a victim.

Inevitably, a split occurs, and you need an attorney. What are your rights? You remember that you and your partner signed a business agreement, but now it's outdated, or worse, no business agreement was ever signed.

An attorney steps into the fray and the business divorce begins. Just like in a real divorce, it must be decided who receives the equipment, the business accounts, and what about the liabilities? The parties head to their respective corners and lay out plans for a business divorce.

But there is so much more involved. The business name and the idea need to be measured for a valuation. The business is appraised and the idea is up for sale but you think: the dissolution was so simple. The original idea was mine, I did most of the work, and now it goes to the winning bidder.

What went wrong? How did it happen?

It all starts with the failure to reach agreements with a partner before you start the business. Maybe it takes the form of a buy and sell agreement, an employment agreement, a sales agreement, a shareholder's agreement, or a mutual management agreement. Too often this is the very last item considered when starting a business, but it is the most important thing you need to do to protect your idea, your position, your dream.

So, when the venture begins, think about the all the possible consequences - in other words, think of it the same way you would think about a pre-nuptial agreement in a marriage.