How to divorce your business partner

We all know that you can divorce your husband or your wife when the relationship turns bad, but can you divorce your business partner? You sure can.

This article will cover how to avoid the unpleasantness of a business divorce (which almost always involves litigation) and what you can expect if there is no alternative to a lawsuit.

It is amazing how many business people have never signed an operating agreement or a written agreement of any kind. Business owners in Florida seem to love the good old-fashioned handshake. For some businesses, this works just fine. For others, it creates a huge mess in the event of a dispute.

In order to avoid a messy business divorce, you should sign an operating agreement drafted by a competent lawyer. Even if you’ve been in business with your partner(s) for years, you can still establish an operating agreement now to help avoid future disputes.

Operating agreements obtained on the internet are likely going to cause trouble in the long run when your lawyer later reads it and realizes that a lot of it does not make any sense, does not apply to your circumstances, or is missing certain elements that a competent lawyer would have included.

A good operating agreement can do a lot of things for a business, such as define the ownership structure, determine how profits are divided, and establish how and by whom the business will be managed. It can also determine what happens if one partner dies or wants to sell their interests. These are just a few examples of what a well-drafted operating agreement can cover.

In circumstances in which an operating agreement has not been signed, an oral agreement can still be proven in court. However, this can be time-consuming and expensive. When this happens, lawyers often rely upon something called “custom and usage” to prove how the company did business. Typically, the company’s accounting records will reflect such details as how and when profits are divided and distributed.

While owners of a business are always free to decide how to separate from one another or split up the business on their own, in cases where the parties cannot agree how to separate or divide the assets, the Florida courts can help them. If there is a “deadlock,” meaning that two owners with equal ownership and voting rights cannot agree upon how the ongoing affairs of the business should be managed, the owners can seek “judicial dissolution” in court. In these circumstances, the court will simply dissolve the business and divide its assets.

Sometimes, two or more partners want to continue to operate the business, but there is one shareholder which the other two partners want to remove. While a good operating agreement will likely contain a provision that determines when a member may be “disassociated” from the business, even if there is no written agreement, a member may be disassociated through a lawsuit filed in court.

There is also a court procedure for determining the value of a business under Florida law known as an “appraisal.” A well-written operating agreement will provide for this.

However, a court can still determine, in certain instances, that a business owner is entitled to have his or her interest appraised by a professional known as a “valuation expert.” Often, parties can agree upon a valuation among themselves and execute a buyout. When they cannot, the court will often arrive at a fair price by hearing the testimony of valuation experts for both parties.

There is a moral to this story. First, understand who it is you are going into business with and make sure you are in agreement as to how the business will be managed and how profits will be divided. Second, once you agree on these crucial points, call your lawyer and ask the lawyer to prepare a written operating agreement. An operating agreement that you download from the internet for free is usually not worth what you paid for it. Third, in the event of a dispute, refer to your operating agreement as it may help you resolve a disagreement without both sides hiring lawyers.

If you have to resolve a dispute through the court system, hire a lawyer who specializes in business disputes. The lawyer who handled your home purchase or drafted your will may not be the right candidate to navigate this complex area of the law.

This story was originally published February 21, 2020 at 6:00 AM with the headline "How to divorce your business partner."