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Rob Royal, shareholder of MSI’s Phoenix law firm member, Tiffany & Bosco, P.A., has recently had his article “When Partners Split: Business Separation in Hard Times” published by the AZ CPA. Mr. Royal used his knowledge and expertise as head of Tiffany & Bosco’s Intra-Corporate and Corporate Severance department to inform CPAs about what they should know when their business clients come to them with irreconcilable differences.
The article focuses on the variety of ways business separation can arise among business owners. For example, much like a marriage, one business owner may no longer be able to work with another or one faction of ownership is unable to conduct business for the good of the company with the other faction. Business divorce occurs when these disagreements, or differences, cannot be resolved.
Mr. Royal also focused on the role conflicts among business owners play in leading to business divorce. Lack of disclosure of important information, such as financial information, often creates distrust among business owners. Improper use of corporate funds or business opportunities for one’s self interest, known as self-dealing, also adds to the tension among business owners. If the business marriage is irretrievably broken, the question then becomes what do CPAs need to know to facilitate a peaceful separation, not only for the business owners but for the business itself.
CPAs have to determine whether the business separation is a “no-fault” business divorce, meaning no wrongful conduct need be proven for the parties to separate, or, whether there are allegations of wrongdoing. If it is a no-fault separation, then corporate documents should dictate the procedure to follow for the business owners to separate. When the corporate documents are reviewed, CPAs should also look to ensure all agreements among the parties are valid. If it is not a no-fault separation, then one owner may desire to recover losses either as an owner or for the company due to the wrongful conduct of the other owner. In an ideal situation, the parties can work out a separation agreement. As an alternative, the parties can explore mediation with a facilitator to encourage and reach a settlement before engaging in litigation. Regardless of the method chosen, CPAs need to protect the company’s assets and pay the entity’s liabilities.
To read the full article please download the PDF document below.
For more information
Please contact Beth Corasiniti at Tiffany & Bosco
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