We've all heard the old adage "Breaking up is hard to do." Unfortunately, this adage proves true not only for personal relationships, but for business relationships, as well. While proper planning (e.g., the use of carefully drafted buy-sell provisions) can help ensure a smooth breakup, what happens when the luster of a new business relationship wears off and you find yourself without an exit strategy?

Business owners without agreements addressing the issues related to the breakup of a business can find themselves scratching their heads and wondering "What now?"

As a preliminary matter, it's important to point out that every business is unique and an exit strategy must be specifically tailored to meet the needs of each venture – there is no "one size fits all" strategy. With that said, there are some general considerations that should be kept in mind for most small to mid-sized businesses.

Who goes?
Sometimes the answer to this question is obvious. Other times, the parties find themselves deadlocked as to who will continue to operate the business and who will be the departing owner. It behooves the parties to come to an agreement regarding this issue, because without an agreement restricting the sale of an owner's interest in a business, an owner is free to sell his or her interest to anyone.

How much?
In practice, it's not uncommon for the parties to value the ownership interests (using an independent business appraiser selected by agreement, or as a result of litigation, mediation or arbitration) prior to identifying the remaining and departing owners.

However, for purposes of this article, let's assume that the parties have identified who the remaining and departing owners will be. The next step is for the parties to come to an agreement regarding the value of the departing owner's interest in the property.

There are a number of ways to determine the value of a business. The method of determining the value is unique to the circumstances of each particular case. A detailed discussion of the different methodologies associated with the valuation of a business is beyond the scope of this article; however, as a general matter, the valuation will typically be performed by an independent business appraiser engaged by some or all of the parties.

The issue of value is usually where most parties disagree. Even where agreements containing buy-sell provisions are in place these provisions are subject to a lot of interpretation and contention.

Liability?
There remains potential for continuing liability to a departing owner. Because of this, in most circumstances, a departing owner should seek an indemnity agreement which would protect him or her from claims that arise after the transfer. If the departing owner was an officer or director of the business, he or she should also seek continuing coverage under a Director & Officer liability insurance policy.

Run-ins with your Ex
To avoid messy run-ins with a former owner (and if not already in place), the parties should negotiate a separation agreement which includes invention assignment(s), a covenant not to compete and a confidentiality agreement. A large part of a business' value may be tied to its proprietary and confidential information. Absent these agreements, a business can lose - or in some instances - never acquire rights to its intellectual property and confidential information. Careful drafting by an attorney is needed to ensure these agreements comply with Texas law.

It's not me, it's you
Like scorned lovers, business breakups can become contentious. If you see your breakup heading south, the following are some points to remember:
1. Watch what you say and do – especially if it's in writing. A recurring theme with litigators is their frustration at having to explain their client's less than stellar conduct to a judge.
2. Save the drama for daytime TV. We all know what a jerk your business partner is, but take efforts to put your feelings aside. Often times, bruised egos and inflamed tempers can blind parties to an otherwise fair deal.
3. Seek the advice of an attorney. It's wise to engage the services of an attorney early in the breakup process - not necessarily to prepare you for litigation, but rather to avoid it.

Try not to become jaded, but ...

Don't let this happen to you again. When starting a new business, take steps to control your equity. Work towards minimizing the potential for conflicts by ensuring that you have governing documents which address a number of contingencies such as the death, divorce or withdrawal of an owner.

Some examples of provisions which should be included in these documents include, but are not limited to: rights of first refusal, buy-sell provisions, covenants not to compete and assignment of inventions.

Due to the complexities and uniqueness of each business venture, it is critical that you meet with your legal and financial professionals to determine what course of action best meets your objectives.