When a business breaks apart, what are the most important legal issues to consider?

by | Jul 2, 2021 | Business Disputes, Business Litigation |

It’s an unfortunate fact of running a business that you will inevitably have disputes with your business partners. This is true whether you run a small start-up or a large company grossing millions of dollars a year. When these partnership disputes escalate to the point where you are ready to call it quits and carve up the company, there are a few important legal matters to keep in mind if you want to minimize the chance of litigation.

Comply with your contracts religiously

When you started this business, or when you joined on, you likely signed a partnership agreement, articles of incorporation, bylaws or another type of business formation document. These documents often contain terms that dictate how the company is to handle the departure of a partner, or how to proceed with the dissolution of the company if that is the goal.

If your business formation documents give you certain responsibilities, such as notification requirements, make sure to comply with them. If they grant you certain rights, such as the ability to take a certain percentage of the company’s clientele or assets with you, make sure not to exceed them. Don’t do anything that your partners can construe as trying to deprive them of their rights either. In this way, you can avoid giving your business partners an easy excuse to file a lawsuit against you.

Mediation may be necessary

It can be a great idea to draft and sign a dissolution agreement with your partners. This way, everyone’s expectations are clear and every partner knows what their responsibility is. By drafting a dissolution agreement, you will have a written record of the business’s creditors and who will pay them, how you will divide company assets and what your recourses are for breach.

It can be extremely difficult to come to an agreement on things such as how to divide client lists or which partners get to keep the company name. In these cases, it can be beneficial to hire an attorney with experience in business mediation in order to facilitate negotiations. Each partner can also have their own attorney present to ensure that their rights are being advocated for.

Breaking up a business of any size can lead to headaches, contention and even litigation. By taking proactive steps to make the breakup as equitable and easy as possible, you can minimize the possibility of having to deal with a potentially costly lawsuit.