What is a “Corporate Divorce”?

hand signing a legal paper

Most of us are familiar with a “marital divorce” – a married couple marks the end of their union by separating their lives, including all the property that makes up the couple’s estate. But did you know that business partners can experience divorce as well?
This is called a “corporate divorce,” when business partners decide to officially part ways. Below, Dan Burke Attorney at Law covers the definition of a corporate divorce and some tips on how to handle one.

Definition of a Corporate Divorce

A corporate divorce can apply to many kinds of business partnership such as a traditional partnership, limited liability company, or even a corporation. Although corporate divorces deal with business, they can still be tricky and emotional as many businesses are led by close friends, co-workers, romantic partners or family members.
A corporate divorce can occur for various reasons, such as parties wanting to pursue other avenues, parties having lost compatibility or parties having differing views on company growth. However, the leading cause is parties having differing opinions on financial decisions.
Corporate divorces are typically a judicial process – meaning they need to be ordered through a court. If you’re unsure whether your case should be handled as a “corporate divorce,” contact a trustworthy attorney to help you walk through all parties’ written agreements.

How to Handle a Corporate Divorce

Emotions can make the best of us turn a simple parting of ways into a situation that damages your relationship with your business partner. Such hostile conditions can turn a once civil split into a full-on lawsuit, which takes time, money and emotional strain. Here are a few tips from Dan Burke that can help you better handle a corporate divorce and avoid litigation:

Have a Plan

The best way to avoid the pain and stress of a business breakup is to have a plan while you and your partner form the business. While it may be difficult to consider a potential split when just starting, it’s best to prepare for the worst. Having a plan early on allows you and your partner to negotiate percentages, debts, assets, intellectual properties and liabilities while still in good faith. It is recommended that this plan be drafted in writing for both parties involved.

Draft a Buy-Sell Agreement

Once you’ve decided on a plan, the next thing to consider is a buy-sell agreement. Also known as a buyout agreement, a buy-sell agreement is a legally binding agreement between business partners that governs the situation if a co-owner dies, is forced to leave or chooses to leave the business. Think of it as a prenuptial agreement – but for business. A buy-sell agreement addresses precisely how your business partnership will dissolve before it reaches a crisis point, which helps protect both sides of the agreement.

All Parties Hire Their Own Attorney

If a corporate divorce is inevitable and the parties decide to move forward, all parties must retain their own attorney. Having an outside party helps avoid any potential disputes and protects each party’s respective position and interests. Similar to a marital divorce, corporate divorces call for separate attorneys so all voices have a chance to be fully heard and represented.

Contact Dan Burke Attorney at Law

Are you interested in learning more about corporate divorces? Have you and your business partner decided on parting ways but not sure where to start? Call Dan Burke Attorney at Law to set up an appointment with our experienced small business lawyers. We can help you prepare ahead of time for the worst-case scenario for your businesses or help you navigate a corporate divorce right from the start.


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