Picture starting your new business and feeling the excitement of a new idea. A laundry list of possibilities comes to mind and you mirror business to match what you envisioned. At this point in time, it is impossible to predict problems or discord with your business partner(s), much less consider changes to success you’ve dreamt up.
No matter the size of the team, your partners are the framework and skeleton to your entity. Each personality, can bring life and motivation or cracks in your business mold, during daily internal operations or abroad with customers and clients. A common mistake is to believe that this can not happen to you and your team. People argue, businesses change direction and life happens, now what?
Talk Now Or Forever Hold Your Peace
The key to getting past any hump in your business is to communicate, effectively. Talk to your co-founders and executive teams. Reassure and re-establish the connections, passions, and visions your team had initially and continue to have for the business. Discuss reachable goals, as well as, current setbacks and issues. The core of a good partnership is trust and open communication. This type of relationship begins with mutual respect and direction, a shared trajectory for your business and its many possible ventures.
Be sure to touch on any detailed terms and agreements initially established upon business creation. This is a good starting point for any partners who are seeking to leave or are expressing remorse in the business. Terms and agreements should detail decision making and voting, business operations, responsibilities, dissolution protocols and more. If no such agreements are established, be sure to contact an attorney to detail and add clauses after the termination of an employee, executive leave of an owner and more.
Choosing not to discuss with your team can drastically change your business environment and basic friendships with one another. Mutuals goals can be blurred and eventually lost. Choose to talk before considering a different route.
The Break-Up Text
Choosing a different route may conclude in a breakup. Whether you are transferring/selling your interest in the business, dissolving the company, you are sending the breakup text.
Breaking up can lead to a fork in the road, leaving you with multiple choices, all of which will affect the business in every way. Both fortunately and unfortunately, the business itself is always at risk when its structure changes, when employees leave and/or expansion occurs.
Whether you want the breakup to happen or not, there are degrees to leaving or getting ownership, let’s talk about them.
1) Buyouts – What Are They?
The purchase of your partner’s interest or sale of your interest in the company, leaving the business by default. As an owner, you have the ability to purchase or “buy out” your partner’s portion of interest/shares in the company. This can be an expensive option and can be priced out by Business Valuation firms which add to the closing costs for the transaction.
Negotiating buyouts can be easier once a valuation has taken place, defining the worth of the business and its party’s specific interest. Consultants will consider current business assets, overhead and future income/spending to determine the fair value of the company.
Buyouts should be approached with caution as they become messy often, especially if all parties are not fully cooperating. Attorneys should be present to smoothen the process and legitimize intention and negotiations.
Hire an experienced business attorney who will represent your interests in the business, as they will guide you through the buyout process, can help restructure your Bylaws, review and draft additional agreements, and so on.
2) Court Intervention – Dissolution
As a partner and owner of a company, you have the right to dissolve your company. An attorney can help force an ultimatum with your partner to choose between a buyout or dissolution. Dissolution can happen with court intervention and the owners have the right to do so individually or collectively. Though this may not be guaranteed, it is always better to dissolve the company as a mutual decision, as opposed to single-handedly.
3) Minority Stakes Are Better Than Nothing
If you are still on good terms with your partners and are choosing not to partake in any more business matter, you always have the option to take a minority stake in the company. However, the same is true vice versa, as your partners have the option to become minority shareholders of the business. Similar to buyouts, with an experienced attorney you can negotiate ultimatums for the sake of lesser weight in the business.
This does not necessarily mean a “break-up”, but does make your partner a passive being in the decision making and daily operations of your business. As a majority shareholder/owner, you have the power and authority to run the business the way you see fit.
4) Mutual Sale – Saleability
If there exists an urge to stop the overall operations of the business and this decision is mutually encountered and respected, then it is possible to sell the business. Whether you sell to a competitor or an overachieving venturer, the results are the same.
Keep in mind the value of your business, not just the goodwill. A valuation consultant can help guide a price point for your business to proceed with the Contract, which an attorney can prepare and execute on your behalf.
The saleability of a business is a huge evaluator that cannot be overlooked. This opens a range of factors such as current market value, the actual services or products provided by the business, and even the existence of competitors and their operations. Perception of value and risk is what makes a business more or less likely to be bought/sold.
5) The Less Popular Seats At The Table
Other less popular choices involve transferring any and all interests to family members such as descendants, co-workers, co-founders, and so on. As well as, gifting interest of the company.
Regardless of choice, make sure to follow all protocols such as paperwork filing with the State, recording of any loans and documents as it relates to the business. It is always best to cooperate even if during a break-up with your partner. Should you have any questions regarding partnership disputes and would like a hands-on approach from one of our attorneys, please visit our website at www.FisherStoneLaw.com or call our office at (212) 256-1877.