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Maryland Business Divorce: “Breaking Up” with a Business Partner

Entering into a business relationship, as a partner, stockholder or member of an LLC has many similarities to getting married.  Ending one is a lot like getting divorced.

Like married couples, business partners must have a mutual understanding of goals, visions, and priorities.  They should have a clear understanding of each person’s strengths and weaknesses, and this understanding should be shared by all parties.  They must be able to share in decision making, delegate work, authority and responsibility according to each partner’s strengths and weaknesses, and communicate openly.  Like many marriages, business partnerships often come to an end.

Proper planning from the conception to the dissolution of a business results in a smoother business divorce, not only for the partners, but also the employees, clients, and customers.

The Courtship

A lasting marriage begins with compatible individuals who invested the time to find the right partner, and who remain willing to invest the time and effort necessary to maintain a mutually beneficial and trusting relationship.  Successful business partnerships are often the result of the same type of courtship.  The courtship of business partners may take years of project collaboration or friendship before going into business together.  A business partnership is more likely to succeed if the partners discuss roles and expectations and have similar management styles, visions, and personalities.

The Prenuptial Agreement

There are several important decisions that prospective business partners should consider before making the commitment to start a business together.  These include financial conversations such as the amount of start-up or future capital each partner contributes or commits as well as the stock arrangements and distribution of profits.  Partners should also include simple but formal protocols for decision making and large business changes.  Dispute resolution processes and work responsibilities and expectations should also be discussed.

Business partners who formalize such agreements in writing and occasionally revisit them over the course of their partnership more often stay in business together and are more likely to split amicably in the event of a business divorce.

The Family Meeting

Business partners should meet occasionally to discuss strategy, finances, delegation of duties and workloads just as a husband and wife must communicate concerns to have a healthy relationship.  Having a procedure or a forum for discussing business finances, initiatives, strategies and changes can be as casual as getting together over coffee or as fun as scheduling a corporate retreat.  These activities provide the ability to maintain an important channel of communication between partners, just as dates and family vacations do in a marriage.

Marriage Counseling

Partners may not anticipate every dispute or foresee misunderstandings or disputes.  Even the closest partners have disagreements.  The same goes for business partners.  Learning how to resolve these disputes is of the utmost concern for both business and romantic partnerships.  Professional counsel and advisors are often helpful resources for smoother sailing and preventive maintenance.  It is effective to establish procedures for settling disputes.  Advisors help keep business disputes between partners on track and help influence better results through suggesting mutually beneficial alternatives.  It is wise to establish relationships with trusted advisors in good times so that trust has been established if they are called upon to help in difficult times.

The Divorce

Business partners break up for many reasons.  However, the most common complaints that cause business partners to split have familiar tones:

“I work harder than you.”

“We have different goals and visions for the business.”

“I just don’t want to do this anymore.”

There are several ways for a partner to exit when a business divorce is imminent.  In addition, to buy-sell provisions that deal with the death, disability or retirement of a partner, business partners can include dispute resolutions and exit clauses in their business agreements.  There are many different ways to structure disputes and exit clauses, so they can be set up to work best for each specific situation.  It is critically important to plan ahead for disputes and exit; failure to do so often leads to the death of a business while the divorcing partners try to structure a resolution and exit at the height of a dispute.

Custody

Many entrepreneurs consider their business to be their “baby”.  Disputes between splitting business partners can damage the company just like an unrestrained battle between spouses can leave lasting scars on children.  In most instances, with proper planning, the business can continue to operate normally after a partner split.

Going through a business divorce can be a complicated and contentious process.  The Maryland business attorneys of Bowie & Jensen, LLC have decades of experience advising business clients on how to avoid a business divorce, and how to successfully navigate one.  Whether you are trying to form a business, save a business, depart from a business or dissolve a business, we have been there before with many clients.

For more information, please contact Mark T. Jensen, Jeremy T. Garner or Jay G. Merwin at Bowie & Jensen, LLC.

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