California Business Divorce: Getting Started

Stradling Yocca Carlson & Rauth
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Stradling Yocca Carlson & Rauth

A business divorce occurs when two or more business partners sever their commercial relationship. Business divorce frequently involves friction, stress, and disagreement – so identifying what you want to achieve at the onset of the process is critical to obtaining the desired outcome.

Are you thinking about getting a business divorce? If so, you want to retain experienced legal counsel who understand the laws governing closely held corporations, partnerships, and limited liability companies, with proven skill in litigation, corporate and tax law. Your lawyer should demonstrate proven skill in both negotiating out of court dissolutions arrangements while also serving as formidable advocate in the event litigation ensues.

In getting started, you and your counsel should discuss three primary areas to ensure you will move in the right direction no matter how difficult or acrimonious the situation:

  1. Your Goals – Define what you want to achieve before beginning your business divorce. It is imperative that you identify your end game. Are you seeking a complete separation? Do you want to gain total control of the company? Do you want to “cash out” altogether or retain an income stream going forward? Are you willing to stay in any sort of commercial relationship (of course within newly defined parameters) with your partners/constituents or do you out altogether? Are you going after damages to compensate for losses? Knowing the answers to these questions will result in a cohesive strategy and streamlined approach to negotiation and resolution.
  2. Your Emotions – Over the course of a business divorce, emotions can and do run high. Individuals sever ties for various reasons, ranging from disparate points of view to perceived or actual betrayal. We have seen smart and disciplined individuals become so emotional that they focus on “principals” rather than strategy.
  3. Your Reality – Be prepared for anything to happen. This advice could apply to practically any negotiation or litigation, however, in business divorce, make sure to establish a reasonable set of expectations upfront and rely upon your counsel to assist you in designing best possible path forward, as well as how to deal the roadblocks to progress to lie ahead. In the event you are blind-sided by any sort of unanticipated action or response, being prepared will serve you in responding appropriately and strategically.

Every business divorce is unique. There is no template or timetable and there will be difficult obstacles to overcome, personalities to diffuse and questions that must be answered. However, in starting the process, you can “begin with the end in mind” and arm yourself with counsel who know what to expect, as well as understand how to leverage your position without exacerbating an already stressful situation

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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