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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