The most expensive argument in business

By Thomas Coates

One of the most common situations I encounter is the business “separation”. Two shareholders, partners, or practice owners who have worked together for years suddenly reach the point where one of them wants out.

Sometimes it is amicable. Sometimes it very much is not.

Usually, the starting point is that the remaining party is offered the opportunity to buy out the interest of the departing party. That is where the problems often begin, particularly where there is no Shareholders Agreement, Partnership Agreement, or Expense Sharing Agreement in place dealing with what happens next. In particular how that interest is valued and the mechanics of progressing that transaction in a timely manner.

The first point is the obvious one. You absolutely should have proper legal documentation governing how an exit is dealt with, particularly the valuation mechanism. That is not even debatable. A properly drafted agreement provides a framework, a process, and ultimately a legal fall back position if relations deteriorate completely. This should be put in place ideally at the commencement of your business relationship but if that was overlooked, you must ensure it is addressed and your business relationship properly documented long before one party wishes to depart.

However, and this is the important part, the legal documentation should be viewed as your last line of defence, not the first. Ironically, my advice to clients engaging in such discussion is to avoid your solicitor at all costs if possible!

Of course legal advice matters and there are situations where strong legal advice and intervention becomes unavoidable. However, the overwhelming objective should be to avoid turning a commercial negotiation into full scale legal warfare if at all possible.

I have seen situations where both parties have spent tens of thousands of pounds on arguing over “the number” between their solicitors, only to end up remarkably close to where they started eighteen months earlier. The only people who truly benefit in that situation are the solicitors.

The best outcomes usually happen where both parties are prepared to communicate sensibly, compromise where necessary, and arrive at a figure that is broadly acceptable to everyone. Not perfect. Not a total victory for one side. Just something both parties can live with.

In the real world, being able to move on with your life and business is usually worth far more than “winning” the argument.

If you find yourself in a business relationship and faced with an impending separation, please do contact us by phone 0330 088 2275 or email  info@buxtoncoates.com for a confidential discussion as to your options.