People do not enter a business relationship with the belief that the business will end with resentment. If you see that as a real possibility in the beginning with your business, you might want to rethink the arrangement. However, the excitement experienced when starting out may blind you from acknowledging the possibility of serious disagreements in the future. There is a likelihood that you and your co-partner/owner will need to confront difficult issues at some point and you may not always agree.
It is critical to anticipate foreseeable disputes and proactively implement appropriate and customized decision-making provisions prior to issues occurring. Simply having an agreed-upon framework (e.g. operating agreement, bylaws, etc.) from which decisions are made can often prevent many disagreements (because there was a mutual understanding on how decisions would be made in the first place).
Be Proactive
It is always easier to adjust the fan before s**t hits it.
Making decisions when you or your business partner are angry and frustrated likely will not end positively. Those feelings are hard to escape when you are actively contemplating a business divorce. Being proactive about decision-making methods within your partnership or operating agreement will help you retain any leftover goodwill and focus on confronting the problem.
If a future issue does threaten the viability of your business, consider the ideal outcome. Also consider how decisions will be made in such circumstances. Will there be one partner who gets to make the ultimate decision? Or does it require majority or unanimous consent? There is no right or wrong answer to these questions. However, partners need to understand the framework and the associated risks.
Avoiding Litigation and Formal Dispute Resolution
If your business divorce results in a formal dispute resolution – arbitration or litigation – it’s not likely to end well for either party. Once you are in the formal dispute resolution process, you’re adding significantly more time and significant fees to attorneys and experts. An agreement with your partner before engaging in formal dispute resolution is typically the best outcome for both parties, as it often saves significant time and expense. Unfortunately, in certain situations, dispute resolution and/or litigation is the only option. However, all other avenues should be explored first because litigation should be the last resort.
Be Prepared
A perfectly drafted operating agreement will not necessarily make the business divorce itself any better. However, an underlying framework for efficiently dealing with an exit is important. A poorly drafted operating agreement (or no agreement at all) often leads to a messier breakup. Click here to learn more about a thoroughly drafted operating agreement.