Monthly Archives: July 2015

A New Approach

Because no Arizona statutes allow for a business owner to generally depart from a private company and receive the value of their interest, there is little motivation for the company and the other owners to deplete company or personal assets to fund a buyout of the departing owner. Generally, owner agreements do not deal with the issue of a general buyout upon termination of employment or departure from the entity. It is not good public policy to force an owner departing the company to look to or find past conflict to force a buyout under certain existing laws. Nor should the company or remaining owners be forced to contend with an owner who does not wish to be part of the company and must force past wrongful conduct to be heard. So why shouldn’t a business divorce follow the same no fault principles of a marital divorce with respect to a division of assets and liabilities?

I have proposed and presented to various groups a no fault business divorce statute. A departing owner who has not concluded a negotiation should apply to a court seeking a division of certain assets and liabilities to receive fair value for his or her interest. In theory, the owner should be given value commensurate with the stock interest held since they have a percentage share of those net assets. This process would require all owners to be within the jurisdiction of the court since each of their stock interests would be affected. The court in an expedited proceeding should take evidence only with respect to what would be a fair and equitable division of the assets and liabilities to equate to the shareholders’ ownership interest. The court then would determine which assets that the owner would take upon departing.

Such a no fault business divorce procedure would provide immediate relief and circumvent the necessity of trying to find wrongful conduct to start litigation and force through a unique statute or common law claim a buyout of the interest. Thus an owner who has been in conflict with other owners or simply for acceptable reasons wishes to depart the company will have an opportunity to recognize and receive their fair value in relation to their ownership interest upon divorce from the other owners. Moreover, such procedure being ultimately available, would likely serve as a deterrent and foster negotiated settlements knowing that a judge may ultimately divide assets and liabilities.