Involuntarily Splitting From a Business Partner

Answer:

As a proficient Delaware County Business Lawyer, clients come to me all the time with questions about how to involuntary split from your business partner.

If your breakup is not going to be voluntary and you have an agreement, then you’ll need to adhere to the agreement’s verbiage.

Hopefully over the life of the company, you and your partner have anticipated this possibility. It’s always best to have a plan in place because if you get to the divorce stage, it’s a lot easier if you’ve got an agreement.

An agreement should provide for the termination, as well as a formula as to how the value of the company will be evaluated. Usually, such formulas involve appraisals, an agreement accept an accountant’s or business advisor’s valuation, and a determination as to how the valuation is going to be paid out.

If one individual wants to remain in the company when the other departs, a buyout provision sets forth how a buyout will be paid, the amounts to be paid, and the schedule the payments will follow. A buyout may also be based upon a cash settlement; in other words, a dollar amount that will allow an exiting partner to leave at a certain time.

The partner may not want to go, but with an agreement in place, you have something each party has previously accepted. It provides an “exit ramp” when one partner believes the partnership can no longer move forward and wants to leave.

The tricky thing about the exit process is that making a “lowball” offer to an exiting partner can backfire. If you are the one offering to buy out your partner for a low sum, they may flip the situation and offer to buy you out for that amount instead.

The member you want out, says okay I’ll buy it for that amount from you. The difficulty then becomes how we resolve this difference.

When these types of difficulties arise, they can be resolved in a number of ways. The best possible route is mediation, the next-best process is arbitration, and the least-favorable is going to court.

The difference between mediation and arbitration is that mediation is a non-binding process in which one mediator who is not a judge facilitates discussion and resolution of the dispute.

By comparison, arbitration is often a binding process, meaning each party must accept the decision of the arbitrators. There may be more than one arbitrators involved — often three — who “hear” each side’s argument as they lay out the facts and argue the value of the business. In similar fashion to a trial, the arbitrators then make a ruling.

The least-favorable process is an actual court trial, in which evidence is laid out and arguments are made. With a trial, the decision is made by a jury, a panel, or a judge, and is binding.

This educational blog was brought to you by experienced Business Attorney Walter J. Timby. Our law firm proudly represents clients throughout Delaware County, as well as Pennsylvania, the greater Philadelphia area, Delaware and New Jersey.

If you have any questions about how to split from your business partner involuntary, please contact our Delaware County Business Lawyers for a free case evaluation. Let our skills work for you.