When two or more people merge to form a business partnership, there is often a lot of excitement and anticipation about the possibilities the new entity will bring.
However, sometimes things don’t work out as planned, and unfortunately some businesses end up divorcing with the partners splitting up and going their separate ways.
There are a few things to consider when a business decides to go through a divorce. One important thing is to make sure that everyone involved in the breakup is on the same page about what is happening and how the business affairs will be handled.
This means making sure that everyone involved understands the reasons for the split and what will happen to each owner, partner, and sometimes shareholders, after the divorce has been finalized.
It’s also important to make sure that both businesses have a solid plan in place for how they will move forward. This includes things like dividing up assets, paying off debts, winding down operations, and setting up new partnerships if needs be.
If the owners or board of directors do not have a solid plan in place, it can be difficult for a business to continue or be sold after the divorce is finalized.
What Are Some Causes Of Business Divorces?
There are a number of reasons why a business divorces and the owners sever ties. Below are some of the most common causes:
- Lack of funds: One of the most common reasons for business dissolution is a lack of available capital. This can be due to a variety of factors, such as poor management, financial mismanagement, or simply not generating enough revenue to cover expenses.
- Infighting among business owners: A second common reason for business dissolution is infighting among business owners. This can range from disagreements over company strategy, outright conflict, self dealing, and sabotage.
- Owner retirement or departure: A third common reason for business divorce is when the owners retire or leave the business. This can lead to a lack of leadership in the business, which can in turn lead to business failure.
- Poor business decisions: Over time, poor business decisions or lack of a business agreement can cause a business to fail, dissolve or even go bankrupt.
- Government intervention: At times, the business itself may not be responsible for dissolution and can be due to government regulation or even complete prohibition of the business’s core operations.This might be due to concerns about public safety or morality laws that allow cities to prohibit certain businesses like strip clubs or other sexually oriented businesses.
For example, years ago prostitution was legal in Nevada until certain counties banned prostitution and changed their zoning laws making it illegal to operate a brothel in a particular county.
This caused large numbers of brothels to close or relocate to another county that did not have zoning restrictions on brothels.
Sometimes businesses are dissolved by order of government bodies because the business violated local laws (e.g. by operating without proper permits or licenses), and the government may step in and force the business to close its doors. This can also happen if a business is a restaurant and it has repeated health or safety code violations.
- Death or disability of business owners: Another common cause for business divoce is when either death or disability prevents one or more business owners from continuing their involvement with the company.While this may not necessarily dissolve the company outright, it often creates instability that can lead to other problems down the road.
- Bankruptcy: Finally, one of the most common reasons businesses dissolve is through bankruptcy proceedings . In this case, the business is unable to pay its debts and must liquidate its assets in order to repay its creditors. While this is often a last resort for business owners, it can be devastating for employees and suppliers who can be left with being paid.
What If I Am Involved In A Business Divorce Situation?
There’s no doubt that going through a business divorce is stressful and emotional. Typically, you have two people who once worked together in harmony that are now disputing each other’s actions and motivations.
If you are an owner or partner in a business that is showing signs that a divorce and dissolution are imminent, you will want to discuss the matter with your accountant and a business advisor or a business attorney. After all, disputing owners may be an emotional time filled with conflict-and conflict makes it difficult to discuss financial issues objectively.
Generally speaking, it may be necessary for you to close out any partnership accounts, including bank accounts and any other accounts that are in your name.
If there are partners whose interest needs to be bought out by another partner or by someone outside of the partnership, then that should also be done at this time.
It is very important to keep accurate records regarding the divorce of a business because there are many tax rules governing partnership activities which can change depending on when the partnership was dissolved.
You will also want to wind up any business tax issues before the partnership has become dissolved because any lingering tax issues such as unpaid state or local taxes could result in tax liens being filed against you personally.
If you are a creditor of a business, you may have to file a proof of claim in order to get paid. If the business is inactive or dissolving, it is possible that the partnership’s assets will not be enough to cover all the partnership’s debts. In this case, the creditors generally have to share in whatever money is available among them.
Dissolving A Business Partnership
Dissolving a business partnership can be a difficult process, but it is necessary in some cases. Here are a few things to keep in mind when dissolving a partnership:
- Make sure that all partners are in agreement about dissolving the partnership. This includes agreeing on the terms of dissolution, such as how assets will be divided and who will be responsible for any debts.
- Notify all creditors and other third parties that the partnership is being dissolved. This will help minimize any legal complications or disputes that may arise after the dissolution has taken place.
- Finalize all transactions and business dealings that are still pending. This will help ensure a smooth transition after the partnership has been dissolved.
- Prepare a formal agreement for the dissolution of assets, debts, and responsibilities. This will help avoid any future disputes or complications.
- Fill out final tax forms as an individual business entity rather than a partnership.
A business divorce can be a difficult process, but it’s important to remember that it doesn’t have to be the end of the world. With careful planning and communication, both businesses can move on and continue to succeed.
Should I Hire A Lawyer For Help With Business Divorce Issues?
Hiring a lawyer can help things go smoothly for you and provide valuable guidance along the way.
A well-qualified business attorney helps disputing owners do a better job of disentangling their personal relationships from financial issues when it comes to discharging fiduciary responsibilities.
In order for an attorney to do that, they need skills in two different areas – on one hand, they need strong legal representation skills – which means having experience drafting documents and negotiating with the parties involved.
On the other hand, a business lawyer needs to have strong communication skills to help disputing parties navigate through difficult times.