United States: Business Divorce Part I: Know Your Options

Last Updated: June 5 2017
Article by Jeremy Sugg

So: you are a business owner. Perhaps you are the managing member of an LLC or a minority shareholder in a corporation who has no involvement in the management of the company. Maybe you started the business with a long-time friend or family member or maybe inherited your ownership interest. It's possible that things are going great, and that you get along swimmingly with your co-owners.

Fast forward a few years, and things are going well, but you have differing views from your partners on how the business should be operating. You may be concerned about questionable dealings by one of your co-owners. Maybe your co-owners are concerned about you!

Whatever the circumstances, there may come a time when you and one or more of your fellow business owners no longer get along. What happens then? The answer to this question is as varied and complex as the circumstances surrounding the birth of your business.

Business Divorce in North Carolina: What You Need to Know

"Business divorce" is a term being used more frequently to refer to situations in which business owners can no longer work together and are looking for a way out. This may include getting out themselves or pushing one or more other co-owners out. It may also include a business owner who is unwillingly being pushed out.

Some of the more common events that can lead to business conflicts, business dissolution, and business divorce include:

  • General disagreement about the future of the business.
  • Inequity or perceived inequity.
  • Shareholder oppression or perceived shareholder oppression.
  • The termination of an employee/shareholder.
  • A wish by some shareholders to sell the business.
  • Retirement of a shareholder.
  • The death or disability of a shareholder.

The consequences of a hasty or unthoughtful business divorce or business dissolution can include lost assets, litigation, and other unwanted outcomes. For this reason, it is crucial you find legal guidance from a firm that regularly represents owners in business divorces and that is well-equipped to assist you or your business in working towards an efficient, smart, and legally sound solution to your unhappy circumstances.

Business Divorce Step 1: Assessing Your Circumstances

The first step in any business divorce should be a detailed analysis of the circumstances and the options available. Again, the circumstances in any business divorce can be as individualized as the placement of a comma in your business' operating agreement. Attention to detail is imperative in determining best steps forward, and taking a thorough, thoughtful, and informed look at your situation is the only way to ensure the optimal outcome.

Assessing the circumstances surrounding your business divorce and the best available options should include:

  • An investigation of the facts. Never take action before collecting all significant information. You may think you want out, but this may not be the best course of action for you or your business. To determine whether a business divorce best aligns with your wishes and interests, you must take a close look at how your choice may impact the business and your life. This includes analysis of the business' records and financial stability.
  • A review of the business' governing documents. In the case of a corporation, this may include reviewing the articles of incorporation, bylaws, and shareholder agreement. The documents you sign when you start the business are binding, even if the nature of the business has changed. Therefore, a close reading of these documents is necessary to determine any actions available and the steps necessary to exercise those actions.
  • A review and analysis of the relevant statutes and case law. If there are no governing documents that make clear a business owner's options in the event of a business dissolution, the options are determined by the applicable statutes and case law. Similarly, if a governing document is silent on any given issue or conflicts with the law, the statutes and case law control. Having an attorney who is very familiar with these laws is imperative to reaching the best outcome for all parties.
  • Objective counseling. Like marital divorce, business divorces are often very emotional situations. You may have been working with someone for many years and developed a close personal relationship. You may be related. In many cases, your relationship may be strained by both personal and business matters. Now that relationship is coming to an end, and it brings with it a threat to your livelihood, your reputation, and your years of effort. You may benefit from someone who can help you to look at the circumstances objectively and guide you to make rational decisions that are best for you and your business.

Whatever the reason for your business divorce, an attorney can help you fully understand your individual circumstances, the circumstances of your business, and your best plan of action for both. Make sure you fully understand the circumstances before embarking upon a business divorce. Not having all possible information at hand, and not understanding all of your legal options can have serious financial, legal, and personal consequences.

Depending on the information uncovered in the above assessment, you may decide to:

  • Keep your business intact.
  • Engage in mediation.
  • Engage in negotiations.
  • Dissolve the business.
  • Seek litigation.

Get Expert, Individualized Legal Representation with Lincoln Derr

With an experienced attorney at your side during your business divorce, you can rest assured that you are taking the right actions, acting legally, and acting as quickly as possible. We know that these conflicts can not only be technically complex, but also emotionally affecting. It is our place and profession to lead you through the process, protecting your interests at every step along the way.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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