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What is a business divorce?

On Behalf of | Apr 11, 2023 | Business Divorce

Business divorce is severing a business relationship between two or more business partners through the courts. It can be just as complex as a regular divorce and sometimes even worse because when millions or billions of dollars are at stake, people are generally highly protective of their financial assets.

Believe it or not, business divorces tend to be very emotional; sometimes as emotional as a matrimonial divorce. Oftentimes, the divorcing business partners built the company from scratch, have been in business together for many years, have been friends for decades, and have been each other’s strength during trying times.

Sometimes relationships fall apart, and as difficult as it is sometimes, business divorce is appropriate. It is important to note, however, that it is not the only option to dissolve or exit a business. Make sure you understand what a business divorce entails and what other options exist for you.

Why does a business divorce happen?

There are certain circumstances where a business divorce is essential, among them:

  • The business partners do not get along anymore but share an equal interest in the company.
  • The lead investors that purchased the company want nothing to do with each other. They have the final say on all major decisions in the operating agreement, as opposed to the board.
  • There are many other reasons why business owners and investors choose to sever their relationship with a business partner.
  • One business partner wants to retire, but the other does not. The retiring business partner does not want to sell the business.

In any of these circumstances, it can be very challenging to navigate all aspects of separating or dissolving the entity altogether.

How does a business divorce happen?

How the business divorce takes place in Delaware will depend on what type of company or business it is.

For example, a divorce is easier to obtain when a company is owned equally, or 50/50, by the parties seeking the divorce. Delaware has statutes for these types of business divorce cases.

In situations where ownership between the parties is not 50/50, things can become more complicated. In these cases, there is no statute. In this case, the business partners can go through the Court of Chancery to separate or dissolve the legal entity.