Over the last six months I’ve worked with a handful of companies that were experiencing major changes in regards to how the company is operating and who the owners are – usually resulting in one or more owners buying another one out. Sometimes the owners realize that they no longer have a shared vision and can work together amicably to resolve the situation so they can each move forward in their professional lives and sometimes it’s quite contentious. I often call the situations “business divorces.”
When these situations happen, it’s helpful to get a business lawyer involved early in the process. You may only need in our consultation to discuss the situation in your proposed plan of action. Your lawyer can act as a neutral third party who doesn’t have invested ego in the outcome of the situation. Invite your lawyer to review your company’s operating agreement or bylaws (hopefully you have these) and remind you of what courses of action you previously agreed upon in this type of conflict (assuming you made these decisions when you started the company) and how to change the status of your business with your state’s corporation commission.
Most business owners I know don’t want to think about the worst case scenario when their businesses are just getting off the ground and everyone is optimistic about the future; however, this is the best time to have this conversation and document it because this is when you are most likely to be thinking about what is fair and what is in the best interests of the company. If you wait until there is a conflict to try to have this conversation, you’re more likely to get into a battle of wills where people are more interested in what they want and/or hurting the other person.
Additionally, if you are going through a “business divorce” expect it to take longer than you’d like. There may be valuations that need to be performed on the company, documents that need to be reviewed by your lawyer or accountant, and a custom contract drafted between you and your future-former-co-owner. This may involve a significant amount of negotiation and revisions.
I actually enjoy drafting these documents to shift the ownership of the company, especially when both sides are represented by counsel. Each lawyer is an advocate for their client’s concerns without it having to be a combative situation. And we can shield our clients from the tribulations that would likely result if they tried to reach a resolution on their own. Ultimately we both want the same thing – a change in business ownership and clients who are satisfied with the outcome.
If you are in a situation where the arrangement with your fellow business owners is no longer effective, please contact me or a business lawyer in your community. If you want to connect with me on social media, you can find me on Twitter, Facebook, YouTube, or LinkedIn.