Splitting the Business Sheets
Business partnerships do not always last the life of the business. If you part ways with your business partner/s, you will want to split the sheets as tidily and cleanly as possible. Some of the same breakup principles that apply to a divorce, apply equally to business partners separating.
If your business is partnership structure, you will need a Deed of Dissolution of Partnership. If your business is run by a company, you will need a Share Sale Agreement.
Issues to be dealt with in the breakup deal / document:
Who is retaining the business, or is the business being divided?
What is being paid by the continuing partner/s to buy the exiting partner’s share of the business? How is the value determined?
Have you achieved total financial separation?
If there are loans from the exiting partner to the business, preferably these will be paid out on settlement.
Are there any debts of the company that the exiting partner has guaranteed, which they need to be removed from?
Will the exiting partner seek an indemnity from the continuing partners for liabilities of the business moving forward?
Have you worked out how the business income (and tax liabilities) for the year to date will be divided?
Sometimes financial separation is not possible on settlement if there are vendor finance arrangements for the breakup.
Has the exiting partner been removed from the lease for the business premises?
The business’ bank will need to approve however the business’ lending is restructured, if applicable, and the exiting partner will need to be removed from the business bank accounts.
Is the exiting partner restrained from competing against the business? Are there any exceptions to this restraint i.e. are there particular clients they are taking with them?
Are there any assets owned by the business that the exiting partner is taking e.g. a vehicle, which the exiting partner needs to buy from the business?
If there is a business partnership document in place, e.g. partnership agreement or shareholders’ agreement – what does it say about separation and has this been complied with?
Taxation and accounting advice
The business’ accountant should advise on the structure of the breakup deal, and the breakup document itself. There is usually a more tax effective way of achieving the separation and this needs to be identified before the breakup document is finalised and signed by the parties.