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Five Ways to Avoid a Nasty Business Divorce

You start up a new business here in San Diego with some friends and colleagues. Everything seems great at the beginning, but despite everyone’s best efforts, it is just not working out because of different visions of where the business should go, clash of personality, and a hundred other reasons. Truth is, sometimes it is better to part ways early rather than later. But it is important to try and avoid a nasty “business divorce”. Here are five ways to help avoid unnecessary unpleasantness.

San Diego Corporate Law: Give Fair Warning

You are running a business. As such, everyone has certain expectations. The first way to avoid a nasty business divorce is to give fair warning that you are moving on. Think of it as giving a two-week’s notice when you quit a job. However, for business divorces, the notice is probably more like two to three months. Your friends and colleagues need time to replace your work and energy and input.

San Diego Corporate Law: Be Honest

The next way to avoid a nasty divorce is to be honest. No reason for vast amounts of details, but whatever the reason for the breakup, be honest with your colleagues and friends. For example, if you have found a better opportunity, let everyone know. It is like finding a new job.

San Diego Corporate Law: Do Not Divert Business Opportunities

Along the same lines, do not divert business opportunities away from the business. This is part of being honest and part of your duty of loyalty to your current business. This is particularly important if you are leaving to start a business that will be in competition with your existing business. Even if the business opportunity is a great one — a big long-term contract, a terrific commission, etc. — leave it alone. There will be other business opportunities in the future. Likewise, do not attempt to solicit other employees to join you, at least not until after separation.

San Diego Corporate Law: Do Not Make it Personal

Even if the main reason you are leaving is because of personality conflicts, avoid making it personal. Sometimes, best friends cannot work together. There are clashes of work styles and habits. That is okay and natural. But, as you contemplate a business divorce, leave the emotion and personal anger at the door. You never know – you may need your former business colleagues or they may become future clients/customers of your new venture.

San Diego Corporate Law: Hire Good Corporate Legal Counsel

A business divorce entails many potential legal pitfalls. Hiring a skilled and experienced corporate attorney to help with the process is important. If your current business is incorporated or organized as an LLC, then there are legal steps necessary to divest one owner of his or her ownership interest. The legal formalities must be followed.

Furthermore, if there is an owners agreement, pre-incorporation agreement, buy-sell agreement, employment contracts, or other legally binding agreements, legal counsel and advice is essential to ensure that your rights are protected. For example, did you contribute property to your existing business? If so, did you retain title and does the Owner Agreement allow you to take that property with you upon separation? Likewise, you need a full understanding of your obligations under those agreements to make sure you fully perform. A good corporate lawyer can help avoid the risk of post-separation lawsuits. Lawsuits are what everyone is really trying to avoid with a business divorce. Finally, your existing business may have trade secrets and other intellectual property that must be considered. When you move to your new venture, you must be sure not to violate confidentialities and trade secrets. Customer lists are, for example, a type of trade secret.

Contact San Diego Corporate Law

For more information, contact experienced corporate attorney Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard can provide advice and guidance on the many complex legal issues that may arise during a business divorce. Contact Mr. Leonard by email or by calling (858) 483-9200.