The break-up of a business can be every bit as painful as the messiest divorce, just look at the recent split between Gordon Ramsay Holdings and its former chief executive Chris Hutcheson. However, there are ways to make it less difficult for all parties.
Assess the value
Working out the value of your business will be central to finding a way out if you wish to leave. If you want to buy your partner out, you may argue that the value of the company is lower than the price suggested and vice-versa.
If a settlement cannot be agreed, the dispute will often go to court. It will suggest that either yourself or your partner buys the others’ shares. Usually an accountant is appointed to value the shares. Its main concern will be to protect the employees and preserve the company.
It’s always easier if you had a Shareholder Agreement at the outset. Rather like prenuptial agreements for businesses, these provide rules to assist in the event of a later dispute/breakdown in the relationship.
The agreement may well include a restrictive covenant to stop the leaving partner from setting up a similar business in direct competition.
These restrictions could also involve the leaver not taking employees, operating in a location that is very near to the original business or having a similar name or theme.
However, even if you have an agreement, remember that in any dispute it pays to:
- Keep a level head– try to remove any emotion from the dispute as this will cost time and create more stress. Most parties in a dispute want to feel they have 'won'. Avoid this attitude, instead, just focus on settling.
- Be realistic in what your company is worth - it is normal for the proposed buyer to place a lower value on the shares and the seller to place a higher one. Agree a fair figure and recognise that there is a value in bringing the dispute to an early conclusion.
- At the start get a clear understanding in what you want to achieve – the basic idea is that you want to buy your partner's shares, or sell your shares and leave the business.
Because you invest so much personal time and effort into setting up a business, it can be very stressful finding yourself in a dispute that is ultimately about bringing an end to your project and relationship with business partner/s.
Like anything you will care about, it is often impossible to completely remove your emotions from the situation, but the longer the situation continues the more damage it will do to the business. Remember there are often no winners in a shareholders dispute; it’s about reducing the degree of the loss.