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What is a Business Dissolution?

Posted by Jonathan Krems | Mar 31, 2022 | 0 Comments

In today's Freedom Friday blog and email newsletter, I want to talk about a topic that a prospective client called me about this week.  He didn't use these terms, but he was actually calling to ask about a business dissolution.  You might ask what is that, or maybe you've heard of the term “business divorce.”  This is when one or more “partners” or “owners” in an LLC or other business structure wants to end the partnership and “split up.”  Perhaps this is because they wish to buy one of the other “partners” or “owners” out.  Or perhaps they just are not getting along or need to go their separate ways otherwise.  All of these situations lead down the same path to a “business dissolution” or “business divorce.”  In today's Freedom Friday blog and email newsletter I want to answer the question of what that is, and how you can get to this point in your small business.

First of all, what is a business dissolution or a business divorce?  A business relationship is lot like a marriage.  At least two people (or more) who co-own a company come together in order to help grow the business and achieve their goals.  Ideally, business partners should trust each other and mutually agree on made to benefit the company.  However, just like in a marriage when couples drift apart over time and then file for divorce, a business dissolution or business divorce is very similar.  When co-owners of a business can no longer get along for a variety of reasons, sometimes going their separate ways might be the best option.  In contrast, a business dissolution or business divorce may be more complex to resolve as compared to the divorce of a marriage.  Large-scale businesses which have multiple owners who possess substantial assets can expect a massive change or restructuring after everything is divided between several former owners.  Here are seven (7) factors which can lead to a business dissolution or business divorce:

  1. Difference of Opinions

The first factor which can lead to a business dissolution or business divorce is difference of opinions.  Most businesses either have a majority owner or co-equal owners.  If there is a difference of opinion regarding the business that the co-owners cannot get on the same page for, then potential conflicts can arise with how to move forward.  If it's serious enough, it's not infrequent that the decision will be made by at least one of the owners that the best way to resolve the conflict is for the owners to go their separate ways, leading to a dissolution of the business, or a business divorce.

  1. Unclear Vision

The second factor which can lead to a business dissolution or business divorce is unclear vision.  Most business owners are often quite sure of themselves and confident about their plans for the business in the early stages.  However, life rarely goes according to plan.  Eventually what once was a clear vision on how to take the business to great heights turns out to be incapable of withstanding the hard realities of running a business.  When this happens, if the vision and resolve of the owners is not strong enough to weather the storm, then there is a great potential for conflict, and if that becomes very severe, the best option might be walking away from the business.

  1. Financial Disputes

The third factor which can lead to a business dissolution or business divorce is financial disputes.  Money issues are arguably the greatest contributor to conflicts that arise in a business.  Money issues can range from the business not generating enough revenue, to situations of an owner creating financial improprieties.  Whatever the financial issue might be, if the owners are unable to amicably resolve the issue, sooner or later, there is the possibility that the issue festers to the “point of no return.”  This is even more so when a more substantial sum of money is involved.

  1. Lack of Responsibility

The fourth factor which can lead to a business dissolution or business divorce is lack of the owners' taking responsibility for the business.  When one of the owners does not put in their fair share of the work required, or does not take responsibility for their actions, or their inactions, this situation can cause a lot of conflict between the business owners.  One-off incidents of this nature don't always lead to a desire to end the business relationship, but if there is a trend of lack of responsibility, then one or more owners may wish to leave the business.

  1. Differences in Personality

The fifth factor which can lead to a business dissolution or business divorce is differences of personality.  Most people are different from one another.  The differences that people have in their personal lives can and will be transferred into the business.  Such differences usually don't cause a problem, and such diversity usually benefits the business.  However, if personality differences are extreme, or negative, they can cause disruption to the business, and some owners may wish to get rid of the source of the negativity because it isn't good for the business.  Examples of personality traits which can cause these types of problems include extreme anger issues or substance abuse.

  1. Lock Out

The sixth factor which can lead to a business dissolution or business divorce is lock out.  This situation happens when one of the owners locks another owner out of the business, either literally or figuratively.  When this situation happens, it is critical to discuss this situation with an experienced business attorney who can help you resolve the situation by reviewing your business's operating agreement and discussing your options with you.

  1. A Failing Business

The seventh factor which can lead to a business dissolution or business divorce is a failing business.  At the end of the day, if a business is not doing well, and if all efforts have been made to turn the business around without any success, then the owners might come to the conclusion of calling it quits with regards to the business.

If your small business is having issues with business partners, collection issues, contract issues, or experiencing other barriers to growth, please contact me at [email protected] to schedule a FREE strategy session.

For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/

About the Author

Jonathan Krems

Jonathan is the Founder and Managing Attorney of Liberty Legal Solutions, LLC, a law firm dedicated to building, protecting, and defending the business and personal interests of our clients in Oklahoma.  Jonathan's primary practice areas are business law, contracts and agreements, business liti...

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