When it's Time for Business Owners to Split Up

March 01, 2018

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In most cases, when people go into business together, they’re optimistic about their ability to work together and for the business to be successful. Unfortunately, it can be very difficult, time consuming and expensive to dissolve a business relationship.  

Here are some warning signs that you may not be able to continue to work with your partner:

  • You no longer respect and trust each other.
  • Communication has broken down.
  • You disagree on how to spend money.
  • You disagree on how to run the business.
  • You think you work harder than your partner.

At some point, it may be time for one of you to leave the business. Keep in mind that if you cannot resolve your conflicts amicably, resorting to litigation can tie up the business for years and can cost much more than you are likely to get out of it.

Try to discuss business issues directly with your partner. If you cannot resolve these matters on your own, you may want to engage a neutral third party or work with a qualified professional, such as a mediator or an arbitrator, in an effort to reach a solution. It goes without saying, but for the good of your business, keep employees, customers and vendors out of your dispute.

Exit strategy planning


If you and your partner entered into a Buy Sell Agreement, then there is a process in place to address how to buy out a partner. The Buy Sell should explain how the company will be valued and the terms for paying the departing owner. The main issue will be reaching an agreement on who should leave the business.

Agreement

If you don’t have an exit strategy in place, you will have to work out a solution with your partner. The simplest and cheapest solution is for the two of you to agree on how to separate. If you cannot reach an agreement, your best choice may be to sell your ownership in the business to your partner or a third party.  

Split up the business

Alternatively, it might be possible to split up the business. It may make sense for both owners to carry on the same business in different geographical areas, different industries or different segments. You and your partner will need to determine how to split up the business assets, including intellectual property, future business activities, and any employees. As a practical matter, you may want to share certain assets through leases and intellectual property licenses.

Dissolve the business

If buying out a partner is too expensive or if the disputes between you are likely to end up in court or fester for a long time without any resolution, another option may be to dissolve the business and allow each of you to go your separate ways. In the long run, it may be smart for you to simply move on to a new business idea with different partners.

Business owners should consult with their legal and tax advisers when removing business owners, restructuring or dissolving a business. For more information, please contact Kathy Tremmel at Tremmel Law, PLLC at (512) 539-0317 or kathy@tremmellaw.com.

Kathy Tremmel

Tremmel Law

Kathy Tremmel has significant experience both as a business attorney and corporate executive. Her career spans both legal practice and business management and she opened her own solo law practice in January 2010. In additional to running her own practice, she also is of Counsel with Selman, Munser & Lerner, which is a business transaction law firm in Austin, Texas. Ms. Tremmel has more than 10 years’ experience as a business attorney, providing transactional legal services to a diverse client base, from start-up ventures to well established companies. She helps companies with all their contracts, including customer agreements, non-compete agreements, employment agreements, buy-sell agreements, loans, and leases, helps people set up new businesses, and represents buyers and sellers of businesses. In addition, Ms. Tremmel has 10 years of management experience working with start-up companies. As VP of Operations at Tusker Group, an international litigation support company, Ms. Tremmel led international teams, managed production and quality issues, handled price negotiations, worked closely with clients to determine the scope of their projects, provided project management services, and developed, implemented and documented best practices for processing and training. Ms. Tremmel earned a Doctor of Jurisprudence from the University of Colorado School of Law and a Bachelor of Arts from Dartmouth College. She is a Texas licensed attorney and a certified Project Management Professional.
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