5 Steps to a Successful Business Relationship Breakup

  • Business Law
January 31, 2017

There are many reasons for business relationship breakups. Sometimes it is due to retirement, and other times an owner wants to pursue other endeavors. Oftentimes, businesses are torn apart from conflicts between the owners of membership interests or shares. Whether the stress of a business relationship costs more than the benefits are worth or you are simply looking to move into the next stage in life, our firm is here to help you breakup with your business relationship. Our Longmont business attorneys at Jorgensen, Brownell & Pepin have represented many business owners in their disputes and buy-sell transactions over the years

Here are 5 steps you should follow to ensure our clients get the best outcome possible:

Step One: Figure Out Your Own Priorities

Is your best-case scenario to be bought out? Is it for you to buy another owner out? What are acceptable outcomes, even if they are not ideal? What terms would be completely unacceptable? How is the business going to continue while you are working out the terms of the business relationship breakup? If your relationship with other owners is too combative, the court may have to appoint a receiver to act in the best interests of the company. Since there are multiple ways to effectively break up a business, your ability to answer these questions is very important in helping our Longmont business lawyers determine a course of action.

Step Two: Allow Our Attorneys to Review the Rules

Each business has its own set of rules that must be followed to sever an owner’s business relationship. Oftentimes the rules stem from an executed Buy-Sell Agreement. In cases where a breach of fiduciary duty is being claimed, or if no Buy-Sell Agreement exists, the rules may be in the company’s forming documents. If you are a member of a limited liability company, the rules usually stem from the company’s operating agreement. A shareholder of a corporation must follow the company’s bylaws. Business partners generally have their own written agreements. Businesses which have not adopted their own rules or whose rules do not comply with Colorado laws follow Colorado’s business statutes. Once our legal team knows the rules, we are able to determine the best strategy to help you achieve your goals.

Step Three: Get a Business Evaluation

Many businesses have the method of obtaining a business valuation built into their Buy-Sell Agreements or formation documents. If so, those rules should be followed. As a general rule, the business valuation should come from a professional consultant which all owners agree upon. In highly contentious cases, sometimes, each party will get their own valuation or even ask the court to determine whose valuator should be used.

Step Four: Determine What You Can or Should Pay

This may be based on the business valuation and how that will be financed. This step is important in approaching negotiations with the company and other owners. Sometimes, an owner will have all of the funds to purchase another owner’s interest in the company outright. Other times, owners have to finance the purchase either through a commercial lender, family member, the seller, or sometimes even the company itself.

Step Five: Work Out the Agreement and the Closing Deal

This involves drafting the agreement and holding a meeting to memorialize the transaction. The company will have to resolve to take the seller’s name off bank accounts, leases, and various licenses, as well as replace the seller from their former titles and roles within the company.

These steps are a simple explanation of a very complex area of the law. Even if a smooth transition is anticipated, it is important to be represented by experienced business attorneys. Many times business relationships breakup without any transitional problems. However, poor drafting or failing to fully determine each owners’ expectations can result in major issues down the road. Due to the complexity and individualized needs of each owner, the generic steps in this blog do not constitute legal advice. Only an experienced business attorney is able to give sound legal advice on this subject.

To protect your interests and avoid problems with your business relationship breakup, it is important to have knowledgeable business attorneys at your side. The business attorneys in Longmont at Jorgensen, Brownell & Pepin are here to help you. Call us today.

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