Tuesday, August 14, 2012

Protecting Your Partnership

Time to Review Your Company Agreements?

Sometimes, even the best relationships between business partners can end badly.  It can be stressful enough when partners decide that they should no longer work together.  But it can be far worse when the business break-up paralyzes the company’s operations. 

One of the best ways to limit the harm from a “business divorce” is to spell out in the company’s governing agreements how the partners would separate.  One common tool is a buy-sell clause that sets a process and valuation method for one partner to buy out another, potentially avoiding very expensive disputes.  Another useful provision would set forth who has authority to run the company’s operations while the business split-up or winding-down is taking place.

Unfortunately, many companies’ shareholder, partnership, or operating agreements omit essential provisions like these two.  In too many cases, companies without a single majority owner find they are unable to run their business and have to rush to court in order to ensure that ongoing operations, such as invoicing, sales, and payroll, can continue normally.  These suits often include additional claims of breach of duties and mismanagement that could be avoided.

With business disputes, an ounce of prevention can be worth far more than a pound of cure and be far less expensive, time-consuming, and damaging to the company’s owners.  Have you reviewed your company’s governing documents recently?  If not, consider sitting down with a lawyer to plan ahead.

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