Splitting From a Business Partner With a Shareholder’s Agreement

Answer:

As a proficient Delaware County Business Attorney, clients come to me all the time with questions about separating from your business partner with a shareholder’s agreement.

If you and your partner wish to voluntarily break up and there is an agreement, then you’ll want to review the agreements formed when you started the corporation, company, partnership, or limited liability company and see what you and your partner agreed to during the course of the operation. These agreements could be:

• Your formation agreement, which is your corporate bylaws
• The corporate minutes that reflect certain agreements
• Your shareholder’s agreements between you and your partner during the course of that relationship
• A particular buyout, which is probably the most important of the documents we want to look at.
• Other types of employment agreements; it could be confidentiality agreements or it could also be restrictive covenants that deal with certain situations when you leave.

If it is a voluntary breakup, the procedure you would use, and it’s always best to get some guidance either from your accountant or your financial advisor, somebody that may know the value of your company.

You may have an idea it as to what you think it’s worth. The accountant may have the same number, but your partner and his accountant may have a different number. The goal is to arrive at that valuation process. If you disagree between yourselves as to what the value is, then you can secure third parties.

This can be done in the form of a formal appraisal, which is a bit expensive, but it’s a process that arrives at a business number. There are certain experts who do this as a living.

It could be that you and your partner have previously agreed in one of your separation agreements or your buy/sell agreements that if you break up, this is what we determine the value of the company to be. This could have been done on a yearly basis, or it could be done every two years. It’s up to you as to how much preparation you put into the possibility of a future business separation.

If your agreements provide for it, you can move forward with the voluntary breakup and the dissolution where each partner goes their own way once you arrive at the number. You pay off the liabilities and either somebody accepts the particular assets or equipment, or they’re sold and put into the pot and at the end after all liabilities are paid, you have a certain amount and that pot is divided by your percentage ownership of it.

This educational blog was brought to you by experienced Business Lawyer Walter J. Timby. Our law firm proudly represents clients throughout Delaware County, as well as Pennsylvania, the greater Philadelphia area, Delaware and New Jersey.

If you have any questions regarding separating from your business partner with a shareholder’s agreement, please contact our Delaware County Business Attorneys for a free case evaluation. Let our knowledge work for you.