Companies sometimes cease operations to do some restructuring. This can occur for various reasons, particularly if partners go their separate ways instead of continuing the partnership or when one larger company splits into smaller companies.
Both situations are complex, so you must ensure you do what’s necessary to protect yourself and your company. There are several considerations to think about when you’re planning this type of transformation for your business.
Reasons business owners may “divorce”
The primary purpose of a split-up is to create separately run companies with their unique focus. When partners aren’t getting along or decide that they want to be independent business owners, each may take a particular facet of the company and splinter into two or more companies. Larger businesses will sometimes divide into separate entities to avoid being considered a monopoly.
Sometimes, companies will undergo a transformation as part of a strategy change. This is often the case when there are untapped markets that can’t be touched while the company is one large entity. This split will sometimes revamp customer support and confidence in a brand.
Protecting business entities post-division
Protecting every business entity during the split-up and after is a priority. The circumstances leading to the division are part of what determines what protective measures are required. When partners are dividing into separate businesses, unambiguous terms of the agreement have to be determined. This must include which party will have the right to each specific asset.
Employee payroll, current debts for the company and business assets are also matters to address. This might mean rolling some over to the newly-formed company, but you must ensure everything is covered. Non-compete agreements that outline specific terms for each party may also be necessary.
Another consideration in a business divorce is the legal business structure and entity. Often, the original company is dissolved, which requires tax filings and notifications to specific government agencies. The reporting specifics are determined by the type of business structure of your company or partnership.
These are just a few details that must be handled. Ultimately, you have to protect the interests of the company as well as shield yourself from liability. Contact us. We can help ensure you have everything covered.
