When a business breaks up between business partners, especially one where there were only two partners each owning 50% of the business, it can become a very incendiary situation. After years of handling these types of disputes I have grown fond of calling these situations the “business divorce.” When small business owners can’t agree it completely deadlocks the business resulting in an inability to do much of anything. Even if one party wants to get out of the business, usually the parties can’t even agree on who is going to leave or what their shares are worth.
The best way to avoid these types of situations is, when forming a business, to make sure and have in place a shareholder agreement (for a corporation) or an operating agreement (for an LLC). These documents are essential in spelling out the business owners rights and responsibilities. They will typically dictate what role each party will have in operating the business, what type of capital contributions each owner must make, what to do in the event of a deadlock in business decisions and how to value the business in the event that an owner wants to be bought out.
If you are forming a new business, make sure that you have a shareholder agreement in place. If you are running a business and don’t have one, get one drafted. With these types of agreements in place, you can defuse a very incendiary situation.
Scott M. Behren and the Behren Law Firm are experts in dealing with the business divorce and have litigated them extensively in the State of Florida. Feel free to call for a free consultation.