When Businesses Divorce

Business owners at war can get divorced.  If all therapy fails and the fighting business owners cannot agree on an amicable separation, they could file for divorce.  In New York, shareholders who represent 50% of the votes of all outstanding shares of a corporation entitled to vote in an election of directors can petition a court to dissolve the corporation when

"there is internal dissension and two or more factions of shareholders are so divided that dissolution would be beneficial to the shareholders."  See New York Business Corporation Law Section 1104(a)(3).

In fact, as described in this in-depth article on the topic, the typical petitioner under Section 1104(a)(3) is a minority shareholder (minority in ownership, but equal in voting rights) looking to be bought out by the majority shareholder and trying to get an upper hand in the negotiations by going to court.

But, as everybody knows, litigation strategies and tricks are costly, staying out of court is priceless.  While conflict is often inevitable, smart business owners prepare by adopting a  Buy-Sell Agreement as part of a shareholder agreement, operating agreement or partnership agreement. 

Related Post:  Going into Business Together – Don’t rely on a Handshake!

About Imke Ratschko

Imke Ratschko is a New York Attorney helping small businesses, business owners and entrepreneurs with all things "Small Business Law," such as litigation, contracts, business owner disputes, shareholder and operating agreements, sale or purchase of a business, investors, and starting a business. You can reach her at 212.253.1027 or by email.