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Business Divorce

guidance for business owners

From small to the largest business divorce cases in Delaware. 

Overview

A business divorce often is what it sounds like: a legal proceeding in which the owners of a business separate their relationship. Whether a true “divorce” is possible depends on the form of the entity, the relevant statutory remedies and the parties’ written agreements. Knowing the judicial and non-judicial remedies available under the relevant statutory schemes and the parties’ agreements is critical to advising a party in a business divorce.

Sometimes, however, the dispute does not present as a business divorce but cries out for that remedy. Recognizing when, how, and why a business divorce may be necessary is critical to guiding clients through disputes among the owners of privately held businesses. Most often, the disputes arise when there is a deadlock between the owners, meaning the owners’ inability to agree results in the entity being unable to make the business decisions it needs to make to continue to operate. Deadlock, however, is only one of the reasons why a business divorce is necessary. The following scenarios are just a few examples of the situations that can lead to, or require, a business divorce:

  • Holders of a minority interest in a company are shut out of a company’s operations, have no representation on the board, and receive no distributions while the managers have caused the company to pay them exorbitant salaries;

  • After a partner retires from the business but keeps an equity interest, the remaining managers divert assets from the retired partners’ project toward the projects that will increase their compensation;

  • Some owners want to sell the company or at least engage in transactions that can result in higher distributions to the owners, but others wish to continue the status quo.

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