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Business Divorce

What do you do when you and your business partners just can’t make it work anymore? A business is very much about relationships, but unlike a marriage where there is only one way to legally dissolve the relationship, when it comes to a business in which you might have partners, members, co-owners or shareholders, there are several potential solutions for parting ways.

Businesses in Texas are governed by the Texas Business Organizations Code, and there are multiple types of business entities, as many owners will know. The first thing you’ll need to know is what kind of business you have. Hayes, Berry, White & Vanzant’s blog has a very helpful article on business entities HERE.

If you have partners or co-owners in the business, you can first and foremost consider negotiating a buy-out of interests in the company. With the proper legal documents and updates to the Secretary of State, you can arrange for a transfer of persons interest in the business to other persons in the business, in exchange for money. Changing ownership in a business requires that the members/owners use the correct legal process and documents – failing to follow the correct procedures could make the transfer ineffective or result in a loss of the liability protections for the individual owners that many business entities provide.

If management of the business is the only issue in dispute, then perhaps a change in management either by electing new officers, transferring the majority of voting interest, or amending the company agreement may have the desired effect.

If the parties cannot reach an agreement, generally that is when a lawsuit will need to be commenced.  Litigation about business management can take many forms, and the Court can be petitioned to step in and resolve or rule on many kinds of disputes. When forced removal of one owner is the only possible solution, then the parties face a very difficult road ahead. There is often no real summary process for removing an owner from a business against their will: you will have to go to Court.  Furthermore, there are only very limited circumstances where ownership and management can be affected by a Court ruling, and tend to require extreme situations. This is not a likely resolution.

More likely is a forced dissolution of the business entity under the Texas Business Organizations Code.  An interested party can file a lawsuit to force the dissolution of the business, and have the Court order the business to “wind up” by clearing its books, selling its assets if any, and dividing the balance amongst the owners; at that point, the owners could take what they have left and start up their own, independent business.

And last, but not least, almost all of these problems can be avoided by having carefully, and professionally crafted legal formation documents and a well-made company operating agreement in the first place. Free or low-cost forms on the internet for forming your own business can seem like a bargain, but those savings are woefully balanced against the amount of trouble you can buy yourself in the long run by not having your business formed and your company agreements drafted by a competent attorney. An ounce of prevention is worth a pound of cure.

If your business is facing these kinds of difficulties, or if you’re looking to start a business and want to avoid many of these headaches in the future, call Hayes, Berry, White & Vanzant, LLP and our experienced attorneys can help guide you through this process and provide you with the full service you and your business need.

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