Mentor Article

Preparing Your Business for a Separation Between Partners

Bob Halagan, Halagan Law Firm, LTD.

One of the most difficult challenges a business owner can face is when things go wrong with another partner/owner and a separation between partners becomes necessary. Here is a checklist of the preliminary things I would look for as either your attorney or as a mediator/business counselor looking to structure your transition.

What do your corporate agreements look like? If you spent the time to structure the exit process beforehand through a buy/sell or redemption agreement, your path is already charted and now it just becomes a matter of following the blueprint for action and set it in motion. This is the easiest situation although typically many challenges can still arise. Do you have the funding to go through with the plan? What if the partner contests some or all aspects of what had been agreed to? How much disruption will the process create for the business of your company and what do you need to do to ensure it survives the transition?

If there is no agreement, who has the authority to force a separation? If you don’t have a buy/sell or redemption agreement in place, the question becomes how do you make a separation happen? Lawyers and lawsuits should generally be the last resort. What leverage is there to incent some to leave? Are there pressure points or sweetners that you can identify to help reach a deal? Does the threat of a dissolution action have a positive or negative effect? Can you isolate the dispute and retain the other partner in a limited capacity of some kind?

Are you confident of who should go and who should stay? Where are the loyalties within the organization and with the customers and how does that affect who should remain in control? What skills are essential to the success of the business and who has those skills? Are they replaceable by non-equity employees? What skills or relationships don’t you have that you will need if your partner leaves?

How does your business survive the transition? What are the disruptions that are going to occur as a result of the transition? Who is impacted internally and externally? Will the departing partner cooperate with the transition and if not, how do you address any potential ill will that may be generated? What is your PR plan for this change and who do you address it to (internal staff or external customers and suppliers)?

These are questions you need to be able to answer with brutal honesty if you want your business to survive and thrive. Look for more insights in the next edition of the Corporate Cranium or contact me for a free consultation.

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