The Complete Guide To a Business Breakup

No break up is fun. But when you’re splitting up with your business partner, it’s not just you and your partner but your business will need to be protected too. We look at the options for partnership organisations and limited companies and provide tips on how to navigate your company’s breakup.

Plan Your Exit

Firstly, think about your options. Take time to consider these and find out what you want the end result to be before entering discussions. Do you want to have nothing more to do with the business and offer to sell your stake to your partner or another shareholder? Do you want to keep the company and offer to buy your partner out? 

If You Have a Partnership or LLP

If you have a partnership company (an LLP) with an agreement in place you will need to go through its terms. In it, it will outline the steps that should be taken following the termination of your partnership. If your business breakup has been caused through a dispute, there should also be a resolution process to follow and directions on how both liabilities and assets should be divided if the partnership is unsalvageable. 

If you do not have any agreement, then the dissolution of your business will be ruled under the UK’s Partnership Act 1890 which outlines the rights and duties of partners and their business. According to the Act, partners can give notice that they wish to dissolve the partnership, and it also sets out the process for splitting assets and liabilities. 

If You Have a Limited Company

One option is to demerger the business, introducing new separate entities which can be owned by different shareholders. This could, for example, be in the form of a ‘spinoff’ company which has its own structure and new company name, but still receiving support from the parent company which may also acquire an equity stake in it. 

There are a number of other ways you could divide your limited company in the event of a breakup. For example, a liquidation merger, when assets are transferred into new, different companies with shares issued to the original shareholders in exchange for being able to wind up the business. 

If you decide that the best way forward is to dissolve the business entirely, you can either apply for a Member’s Voluntary liquidation or to have the company struck off Companies House. 

Tips For a Successful Business Break up

Remaining amicable and making sensible decisions are key to a smoother business breakup, here’s some tips on how you can keep things practical, yet cordial 

• Be open about your plans for the future. Transparency and good communication are a good way to keep things amicable. It can pave the way for a smoother process and can also help safeguard against any legal conflicts and keep your personal relationship intact. 
• Pay off all debts. Make sure you plan to pay off your business debts from the start, this is especially important if you are in a partnership agreement where you may have personal liability. 
• Consider mediation. If you cannot agree on things with your business partner, business mediation can help. This involves a neutral third party helping both partners reach mutual agreements and plan a way forward. It is also less expensive than going through litigation.
• Protect your assets. Before you make any decisions, consider freezing your accounts. If relations become strained, having this in place will give you peace of mind about your future finances and your business. Also, consider hiring a specialised accountant to ensure the company’s financial documents are problem-free. 
• Speak to a lawyer. Gaining legal advice early on can be very valuable in a business breakup. An experienced solicitor will look at the fine details of your accounts and other relevant documents, for example, your exit strategy or no-compete agreement, and advise you on the next critical steps to make.  

The main takeaway for a successful business breakup is to weigh up your options carefully and as early on as possible. This will prevent you from making any rash decisions which may prove a mistake in the future.