Sunday, May 17, 2009

Starting a New Business? Think About the End, Too

Take a look at's Breaking up is hard to do — so have a plan

“You start a business hoping that it will last forever,” said Raymond Felton, a co-managing partner with the Woodbridge law firm Greenbaum, Rowe, Smith & Davis LLP. “But it doesn’t always work out that way, and in this weak economy, we’re seeing more quarrels between owners that lead to splitting their companies apart.”

A business split can be driven by a failure, or one partner may just lose interest in the company, said William R. Watkins, a partner in the Summit office of law firm Lindabury, McCormick, Estabrook, & Cooper P.C.

In one case, a New Jersey-based residential and commercial developer was owned by two unrelated families, and operated profitably under its founders for many years, said Felton, who worked on the case, “but when the owners’ sons took over the company, they started to squabble, the business suffered and the partners took their dispute to court.

“The litigation ran for 18 months, and the company was eventually split up. It likely would have been resolved a lot faster if the partners already had a breakup agreement in place before they started to disagree,” he said.
Breaking up is hard to do — so have a plan -
“Even if there’s no fight, a closely held company should have buy-sell or other provisions that lay out what will happen if an owner dies suddenly, or wants to retire,” Felton said. “Without such an agreement, the surviving business partner may suddenly be paired up with a spouse, heir or someone else that they never planned to work with.”

Many startups delay drafting a breakup agreement, said Deborah A. Hays, a partner with the Haddonfield law firm Archer & Greiner P.C.

“They say they don’t have the time, or maybe they want to save on legal fees,” she said. “But then it never gets done, and they forget about it until there’s a breakup that can really run up large legal fees.”
If your business does not have a plan for dissolution, give me a call.