Averting a Business Divorce: Lessons for Business Owners

Over my many years representing companies and their owners, I have seen firsthand how conflict can wreak havoc.  Sometimes, the inevitable happens: a "business divorce." This is a short primer about the likelihood of conflict and its effects.  

There are many points for friction - differences in vision, changed financial circumstances among owners, performance or personal issues, and even challenges to company leadership. 

All these things will expose vulnerabilities, forcing business owners into difficult decisions about the future of their enterprises. While some dissolve under the weight of economic and operational challenges, others navigate their disputes successfully and emerge stronger. 

For the businesses that weather the challenges, the question is: what sets them apart? 

The Challenges Facing Businesses

Regardless of industry, the challenges are universal:

• Decreased demand—Should the business pivot, adjust pricing, or overhaul its model?

• Supply chain disruptions—Pass increased costs to customers or absorb them?

• Employment dilemmas—Implement layoffs, cut salaries, or find alternative cost-saving measures.

• Contractual nonperformance—Renegotiate, default, or cancel agreements?

• Liquidity crises—Restructure financing or face potential default?

Each of these decisions carries financial and legal consequences. Business partners often find themselves at odds, disagreeing over how to proceed. Many ownership agreements are ill-equipped to handle these disputes, resulting in deadlock or, worse, dissolution.

Preventing Business Disputes Before They Begin

A well-drafted owner agreement is the foundation of a resilient business partnership. It should address:

• Decision-making authority—what requires unanimous, supermajority, or majority consent?

• Roles and responsibilities—there should be defined duties and performance expectations.

• Ownership transfers—how are shares sold or transferred upon an owner’s departure?

• Dispute resolution mechanisms—consider mandatory negotiation, mediation, or arbitration clauses, and even deadlock terms, all to avoid costly litigation. 

• Financial contingencies—include clear terms for profit distributions, liquidity crises, and emergency financing.

By proactively structuring agreements with these considerations in mind, owners can prevent disputes from escalating into existential threats.

Resolving Disputes Without Destroying the Business

Even with strong agreements in place, disagreements can arise. The key is to address them swiftly and constructively:

1. Direct Discussions – Honest, good-faith negotiations should be the first step.

2. Renegotiation of Terms – If business conditions or circumstances among owners have changed, a revised agreement may be in order.

3. Mediation – A neutral third party can facilitate a resolution before legal action becomes necessary.

When conflicts are approached with an open mind and a willingness to compromise, businesses can avoid costly litigation and unnecessary dissolutions.

The Path Forward

Uncertainty in business underscores the importance of preparation, flexibility, and strategic decision-making. While some businesses succumb to internal strife, those with well-structured agreements and a commitment to constructive dispute resolution find ways to adapt and survive.

As business owners look ahead, they must ask: Is our ownership agreement equipped to handle challenges and disputes? If not, now is the time to revise it. Investing in sound governance and proactive legal strategies today will pay dividends when the next challenge inevitably arises.

If you need guidance on strengthening your company’s governance framework or resolving a partnership dispute, let’s discuss how I can help protect your business’s future.