Tennessee Business Litigation Lawyers Blog
In Tennessee, quite a few corporations and LLCs are owned equally by two parties. Frequently, the relationship between the owners sours, or worse. At some point, a “business divorce” may become necessary. If you want to keep the business, but need your co-owner out of the business, how do you proceed?
The first thing you should do is to check the by-laws (for corporations) or operating agreement (for LLCs), if they exist, which they may not. If there was good pre-formation planning, you may be fortunate enough to have an agreement already in place about how one owner may buy out the other. Some by-laws and operating agreements contain provisions which allow one owner to make an offer to the other owner for his or her membership interests or shares. Those provisions then require the owner to whom the offer is made either to accept the offer or to buy out the owner who made the offer for the same amount that was offered to him or her. If the other owner may also want to keep the business, considerable caution and thought need to go into an offer since the non-offering owner may decide to buy out the offering owner if he or she determines that the price offered makes it attractive to keep the business.
If the by-laws or operating agreement do not provide for a process whereby one owner can force an end to the joint ownership, you should consider approaching the other owner to try and reach an agreement about a price the other owner is willing to take for his or her interest in the corporation or LLC. If you reach a suitable agreement, be sure to memorialize it in a document. It is highly advisable that you have an experienced Tennessee business divorce lawyer ensure that the agreement covers you.
If no agreement can be reached, you may have to dissolve the LLC or corporation. In my experience, it will probably not come to a dissolution because, in most cases, a co-owner would be foolish to force a dissolution as opposed to taking a buy-out. In a dissolution, the going concern value of the company will be lost which means that your co-owner is likely to receive substantially less in a dissolution than he or she would receive pursuant to an offer made on the fair value of his or her interest in the business as a going concern. If you are forced to dissolve the company, you will most likely be able to buy assets of the company, and you can start a new competing business just as soon as the dissolution process begins, if not before.
If neither you nor your co-owner want to keep the business and no one else is willing to buy it, the business will have to be dissolved. In a dissolution, how are the assets of the company which remain after all creditors are paid to be divided? The by-laws or operating agreement may have provisions that provide for how assets which remain after all debts have been paid will be divided. If they do not, and the owners’ capital accounts are equal, the assets remaining after the payment of all debts will be divided equally.