Company separation

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Published: 23 Jun 2017

When breaking up is hard to do - Part 1

No, I am not a divorce lawyer, but I do become involved in valuing companies whose shareholders wish to ‘part company’, if you see what I mean.

As in divorce, the company separation may be civilised or acrimonious.

If the shareholder / directors are still communicating with each other and working together for the good of the company, a meeting with all of them can set out a plan for an agreed separation.

This may take the form of either:

  1. A shareholder(s) buying out the other(s) at an agreed valuation
  2. The company buys back the shares of the outgoing shareholder(s) at an agreed valuation
  3. The company is put into liquidation, with the shareholder/directors going their separate ways with their agreed share of assets and business clients.

There is inevitably a certain amount of tension at the beginning of this process, but it is always heartening to see the contented faces on all parties once the process is complete.

If the director / shareholders are 'at logger heads', then it is paramount that action is taken quickly to resolve the disagreements. The earlier it is done the easier it is to do. If they cannot be resolved, then one of the actions in 1) to 3) above needs to be implemented. If a shareholder’s agreement is in place, this may contain provisions to ease the process.

Be warned

A word of warning to the shareholder/director who wishes to sell his shareholding: the value of the company is generally based on its profitability, customer relations and knowledge of its operations. This can degenerate quite rapidly if the main protagonists are not talking to each other and the business has not been given proper guidance. So the seller should act quickly to protect the value of his interests.

In dispute?

To have to resort to the law to gain compensation, where you feel that you have been unfairly treated, is an expensive business. If necessary, try mediation before going to court. In this way you have the chance of reaching a compromise as opposed to “the winner takes all” decision from a court.

It may not be a perfect solution, but the costs of mediation are far cheaper than going to court.

In When breaking up is hard to do - Part 2, I look at the situation of divorcing couples, where either or both parties have an interest in a company, which needs to be valued as part of the divorce settlement.

If you would like help smoothing the path to company separation, contact David Cane on 07749 080 806 or email [email protected].