Understanding Business Partitions
You may be aware that businesses can be owned by more than one person, regardless of the type of business entity. Whether an LLC, or a partnership, or a company, there are often multiple owners. But when those owners have a dispute, and one that can’t be resolved, often the only option is to split the business.
Businesses obviously can’t be split in reality—two owners can’t each walk off with one half of the business. Assuming the business will go on and survive, there can’t be two of the same business, and there is no way to just divide a business and give each owner his or her share of ownership.
The Partition Action
That’s where a partition action comes in. A partition action really asks the court to do two things:
1) Find that the business needs to be divided, and
2) If so, determine who gets how much of the business, once it is divided
It is a drastic step to ask a court to just divide a business. Courts are hesitant to just divide a perfectly good business, knowing that doing so can risk jobs, income, and stability, of all involved (and not just the owners,. But the employees as well).
Will the Court Divide the Business?
There are ways to get a court to agree to partition a business. In many cases the corporate documents, like the bylaws or partnership agreement, will say that the business needs to be divided, in the event that one of a specified number of events happens.
But even if the corporate governing documents are silent, a co-owner can also ask that court divide a business, if there is some dispute that makes continuing, ongoing co-ownership of the company impossible. This may be if partners or owners have diametrically differing views of what the company should or should not do, or on allegations of impropriety or misappropriation of resources or corporate funds.
After the Division
If the company will be divided (partitioned), there are again, two choices:
1) Evaluate the company, and once the company is valued, sell it and divide the profits between the owners
2) Evaluate the company, and once the company is valued, one owner keeps the company and then pays out the other owner(s) his or her value in the business.
The second option is best when one owner wants to keep the company and the other does not. However, it also creates problems, as the person keeping the business needs to come up with a way to pay the other, leaving the owner his or her share or interest in the business.
The owner keeping the business may have to take out a loan, or come up with a payment arrangement to the “leaving owner” if a lump sum isn’t available, as it often is not.
Are you having a business dispute? A partition may be the best option for you. Call our West Palm Beach business litigation lawyers at Pike & Lustig today.