Insight

Business Splits

There are hundreds of thousands of businesses in the UK owned by 1, 2 or 3 people. With businesses where there are just a few shareholders are partners, it is common for there to be strategic or personal disagreements or differences in opinions as to which direction the business should go in the future.

Where business partners or shareholders don’t want the same thing, what should happen to the business? Much depends on what has previously been agreed and documented in a shareholder agreement or partnership agreement. In many cases, where these agreements are not in place or are very basic, there are several options.

Our lawyers are highly experienced in advising on business splits. We always look for the best option which avoids lengthy and costly litigation. Please do give us a call.

Shareholder or partnership agreement should deal with exits

A well drafted shareholder or partnership agreement should deal with what should happen in a business split. Issues covered should include :-

  • What happens if 1 of the owners falls ill, dies, is imprisoned or goes bankrupt?
  • What happens if 1 of the owners isn’t pulling their weight in the business if the business is set up on the basis the owners will work in it?
  • What happens if there is a conflict of interest whereby 1 owner behaves inappropriately and defining what that mean?
  • The consequences to any owner if he/she behaves in the ways described above and could therefore be considered to be a bad leaver – should that give the other owner(s) the right to force the owner at fault to sell his or her interest at a discount to the remaining owners.
  • What happens in a deadlock situation?
  • Where the owners cannot agree on important strategic decisions and decide they need to go different ways – should the business be liquidated, is there an agreed mechanism for valuing the business and for 1 of the owners to buy the other out or should the business be slit up in other ways or marketed to 3rd parties?

So, check your shareholder agreement or partnership agreement.  If it doesn’t deal with these issues, we ‘d be happy to help.

Dissolution or settlement agreement when partners or shareholders split

With a business exit it is in neither parties interest for matters to conclude with an enforceable court judgment. If that happens, there will almost certainly be significant legal costs incurred. A negotiated resolution is almost always best but as part of that a formal termination, dissolution or settlement agreement is very important. This is especially the case with an unlimited liability business partnership.

Joint and several liability and personal liability create significant legal and financial risks and it is unsafe to assume that a creditor will pursue all partners equally. They are under no obligation to do so. Dealing with the remaining business assets and issues such as IP, goodwill and any future restrictions if 1 party is retaining the business going forward also need to be included in a comprehensive and clear business termination agreement.

If you are thinking ahead and considering what would happen if things go wrong with your new business partner and don’t have an agreement, our experienced lawyers can help. We can also advise if you are ending or leaving a business partnership and there is a dispute or you are concerned about future rights or liabilities. Please do give us a call.

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