Like marriage, entering into a business relationship is often easier than exiting from one. The same planning and forethought used when entering into business relationships and creating a business should be applied in ending those relationships and businesses. Like a divorce, ending a business or business relationship can be time consuming and costly, put your future at risk, and jeopardize your personal assets.
Prior to a recent change in Illinois law, the common law duties of loyalty, fidelity and good faith/fair dealing implied in all closely-held businesses became a personal liability trap for and professional handcuffs on a departing business owner. Until his often non-marketable ownership interest was sold, the departing owner could not compete with the corporation, often rendering him unemployable. It also gave the remaining owners unfair leverage in negotiating the ownership buyout. The Illinois business Corporation Act now addresses this trap by allowing a former owner, in qualified circumstances, the freedom to compete if he resigns all positions with the business and stops exercising any ownership control.
The limited liability protection of your business, your insurance coverage and your right to seek indemnity from other owners could also be lost if your business is not concluded properly. All of the safeguards and caution you employed while operating your business may be for naught if the business is not properly concluded. Corporate dissolution, asset sales, assignments for the benefit of creditors and other methods to conclude a business or end a business relationship can be employed to limit your exposure to liability.
The best time to structure your exit from a business or business relationship is at the inception of the business or relationship, like a pre-nuptial agreement before marriage, when all parties are on an equal footing with similar interests and incentives. Structuring your exit later may be more difficult, but doing it properly is no less important.
At Brooks, Tarulis & Tibble, LLC, we have been involved in the dissolution and termination of businesses and business relationships, and can assist you in negotiating the conclusion of particular interests while minimizing your liabilities. We also do business succession planning. If we can be of assistance to you in this regard, please contact me.
Douglas C Tibble