How To Navigate A Small Business Divorce

How To Navigate A Small Business Divorce

Just like with any relationship, business partners can experience hardships throughout their working relationship. This is true both in high-level corporate entities and for partners involved in a small business or startup endeavor. Small business partners can experience more business disputes than one may think due to their operations being much more contained. While experiencing minor issues is normal, some disagreements, life changes, and business fluctuations can be hard to come back from, often leading to a small business divorce. It is thus very important for business partners in Texas to know how to navigate a small business divorce.

Small Business Divorce

Similar to a divorce between romantic partners, a small business divorce refers to instances where one or more business partners make the decision they no longer want to be in business with their other partners. While there are many ways a business divorce can occur, they often involve two individual partners.

Conflicts between small business partners who hold substantial ownership stakes can be incredibly complex, personal, and often highly contentious. Additionally, depending on the type of business entity the endeavor formed, the laws regarding its governance and operation can vary greatly. Everything from changes in leadership structure and major financial performance changes to external issues can threaten the success of any company. Knowing how to navigate the issues that come with a small business divorce can greatly help owners understand the potential signs their partnership could be coming to an end.

Some of the common signs a small business partnership is heading toward divorce include:

  • A general sense that one or more of the partners is not carrying their weight, leaving the other partner(s) with the majority of the tasks necessary to keep the business afloat
  • Disagreements about fundamental features of the business
  • Partners have drastically different working styles which conflict with one another
  • Financial disagreements

Dissolving A Business Partnership

While the process of a business divorce or dissolving a partnership is not as simple as just closing the doors of the company, the steps that need to be taken are fairly straightforward. When a business partnership ends, those involved are no longer partners in a legal sense; however, the partnership will remain in effect until all business debts have been settled, the legal existence of the business has been terminated, and any remaining assets of the company have been distributed.

The steps to take when navigating a small business divorce include:

Reviewing the Partnership Agreement

When business partners decide to end their working relationship, they must go back and review their partnership agreement. This review of agreed-upon terms informs the partners of the full parameters of the partnership, including the protocol that was agreed upon for dissolving it. Typically, the agreement will specify whether if a majority vote is needed to dissolve the business; however, this is more common for larger entities including large corporations.

Discussing the Business Divorce with Your Business Partner(s)

No matter how complex and contentious the reasoning for a small business divorce, partners should still attempt to have a candid discussion regarding business dissolution. All partners will need to discuss their existing obligations to the entity, such as any current business debts and potential future liabilities, as well as the plans to wind down operations.

Filing a Dissolution of Business Form

All business partners will need to file for the dissolution of their partnership in the state in which the business is located to formally begin the process of ending it. In Texas, this process requires the partners to take the necessary internal steps to wind up the affairs of the business, which often requires the assistance of a business attorney. Following this, all partners must submit a signed copy of the certificate of termination form to be processed and pay the appropriate filing fees.

Notifying Others

Once the proper forms have been filed, the partners will then need to advise others involved in the business about the divorce. This includes everyone from employees, clients, and customers to the landlord of the business property and any government entities like the Internal Revenue Service (IRS) that have registered the business or issued a license to the business.

Settling and Closing Accounts

Lastly, any remaining debts the business owes must be paid before the partnership can officially end. This includes closing all related business bank accounts and distributing the existing assets as outlined in the partnership agreement or based on what the partners have discussed during the business divorce process.

Amarillo Small Business Divorce Lawyers

Business disputes of any kind are inevitable during operations. However, when these disputes between partners become contentious and complex, a business divorce could be on the horizon. At Lovell, Lovell, Isern & Farabough, LLP, our litigation attorneys have extensive experience in successfully and efficiently resolving business matters. If you are currently involved in a business dispute and believe your company may be heading towards a business divorce, our trial lawyers can discuss and explain the details of the best legal options. Contact our office today to see how we can help.

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