How to Plan for and Survive a Business Dissolution

Two stylish business persons in sauits having disagreement, war, conflict, standing near desktop in front of each other, face to face with disrespect expression, partner showing stop sign with hands. concept for How to Plan for and Survive a Business Dissolution.

Business relationships and marriages share many similarities. They both begin with a spark of passion and optimistic ideas for the future. Effective communication is essential for their success, and they inevitably encounter periods of highs and lows. Furthermore, akin to marriages, business relationships occasionally reach their conclusion. A business dissolution occurs when the relationship between business owners cannot be salvaged, and the business can no longer function. This can happen when the owners are deadlocked about a decision, such as when

  • Equal members are unable to reach an agreement;
  • There is a failure to obtain a majority vote;
  • A member with approval rights does not approve of the direction the business is heading; or
  • Unanimous consent cannot be obtained when it is required.

Just like individuals have prenuptial agreements, the best way to survive a business dissolution is through proper planning. When setting up the business, you should have an operating agreement in place that includes instructions for breaking the deadlock and what to do when it is time to dissolve the business.

Surviving a Business Dissolution Among Owners

Like a dissolution of marriage, breaking apart a business can become contentious. Business owners often have an emotional attachment to the company they founded, and it is difficult to agree on an exit strategy.

Look to the Organizing Documents

The business’s operating agreement should include a process for the orderly withdrawal or buyout of one or more business owners. It should set out the procedures to be followed and a method for determining suitable compensation for the departing owner(s).

Remain Reasonable and Level-Headed

Remember to remain rational and level-headed as part of your business dissolution strategy. It can get emotional, which can derail discussions and cause unnecessary harm to everyone involved. Fighting between business owners can harm the business and land business owners in court.

Communicate Clearly and Effectively

Clear and effective communication is critical in a business divorce. Business owners must move past the impulse to blame one another and instead focus on the issue at hand, which is coming to a fair agreement concerning the business’s assets and liabilities and determining how the company will move forward, if at all.

Identify Priorities

The owners must identify their priorities. For the departing business owner(s), that means winding up affairs so they can be fairly compensated and move on to their next venture. For the remaining business owners, it means focusing on preserving business assets and ensuring the continued viability and growth of the business. Causing unnecessary harm to a departing owner will only create another highly-motivated competitor.

Dissolving a Business in Ohio

Once you have decided to dissolve your business, there are formalities that must be followed based on the kind of entity your business is. If the company will cease operations, there are steps you should take to formally close the business.

Review the Operating Agreement

The operating agreement and organizing documents should outline the steps necessary to dissolve the business, including who must vote, how the vote must be conducted, and the number of votes required to approve the dissolution.

Filing Articles of Dissolution

Once many logistical steps have been taken, you may need to file Articles of Dissolution with the Secretary of State.

RKPT: Ohio Business Attorneys

The business attorneys at RKPT will ensure that you are going about dissolving your business in the right way. We will provide advice and legal counsel to help you remain level-headed, and we will protect your interests so you avoid costly legal mistakes.

Contact us today to schedule a consultation to discuss your situation.