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It Was Fun While It Lasted: Surviving a Business Divorce

You’ve given your blood, sweat and tears to the business but your relationship has changed with your partner. Considering a business divorce can be a very trying time, but it doesn’t have to be if you’ve prepared for the possibility from the moment your business was formed.

That’s where we come in at Top Floor Legal. We can help review your current agreement and show you the ins and outs of that partnership document (or LLC/corporation documents) . If you’re starting a new business, we can protect you and your partner be prepared for the many life changes that could affect the partnership’s bottom line down the road.

For Better or Worse

In your personal life, just think back to that moment when you made (or received) your proposal to your significant other while down on bended knee. You promised what your life would be like together, through the good and bad times. That’s exactly what you need to do with your business, by putting the terms for the general partnership in writing.

California business law does not require a written agreement, but for businesses that fail, not having an agreement will leave both parties exposed financially and legally.

Relationship on the Rocks

If you’re deciding that it’s time for you step away from the business, it’s important you check the terms of your partnership agreement. If your business is in California and was formed without a written agreement, it could cost you a lot of your resources to get out of the business. The California Revised Uniform Partnership Act (RUPA) governs partnerships. It treats each partner as an equal. So if you contributed 75% of the startup money or contributed more resources than your partner, the state of California does not see it that way.  In the general partnership agreement you each own 50% in the state’s eyes. The California Secretary of State’s office views each partner as having an equal share of the business, equal share of the profits and equal when it comes to its debt.

If you did not establish a partnership agreement, you may personally be on the line for any deal or debit your partner signed for at any time. Remember, a general partnership does not provide personal liability protection. It’s something you should consider when deciding on leaving the business or when forming a new company.

In California, to protect yourself personally, you can form a limited liability corporation or an LLC, or a corporation. Partnership dissolution is an option that we can help you achieve.  If you are beginning the process of incorporating the business in a new operating structure, we can handle the transition to provide limited interruption in your business. Many times businesses that start as a general partnership dissolve and come back in a new form from a dispute, retirement or other business change.

Considering all options….

If you’re considering leaving a partnership, you need to consult a different attorney than the one that currently handles your partnership. It would be considered a conflict of interest for one attorney or firm to advise both parties in a possible divorce.

At Top Floor Legal, we’re here to help you weigh the options by reviewing the partnership agreement. Walking away may not be the best move financially for you or your family, so there are other options and strategies that we can provide.

Life Happens

So we’ve told you about what could happen if the partnership takes a downward turn and some of the possible implications. But it doesn’t have to a troubling time, if you’ve established a strong partnership agreement.

If you’re starting out a new business partnership there are a lot of ideas floating around in both of your heads as you try to get the business off the ground. You’re not going to think of all the liabilities that you will face, as you’re concerned about making money living your dreams. That’s why a well-written business partnership agreement by an experienced California Business attorney is essential. A partnership agreement needs to be formed that lays out each party’s duties, their financial-contributions and terms if a dispute arises.

If a dispute does happen, then a written agreement can layout how the parties will settle it, which can save both parties the significant costs that arise if the matter heads to court. Plus, that business partnership agreement could even include terms for mediation, in which a neutral party settles the dispute instead of litigation, which could save both parties tens of thousands of dollars in litigation.

Consider the partnership agreement for the business like a prenuptial agreement for a marriage. It will set the terms for the partnership in writing. Remember, you don’t want to think your business could end before it even starts. That’s why we’re here to help develop a partnership agreement that protects all the partners’ interests.

Nasir Pasha, Esq.

Post by:

Managing attorney and co-host of podcast Legally Sound | Smart Business

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