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  • Sophie Clifford Eva Edel

The fun is gone. Divorcing your business partner


 


“It used to be fun” “I’m not sleeping”. “This is exhausting”.
“My co-founder just doesn’t have what it takes at this stage of the company”. “I can’t carry them”. 
“I care about them but I just can’t work with them anymore” 
 “Actually, I don’t like them very much anymore”. “This is the most toxic thing I have ever experienced”
 
These are some common things founders who struggle with their co-founders tell me – either as their lawyer or as a mediator. 
 
The founding journey, like a marriage, is not an easy one and it’s no surprise the founding relationship can strain. Sometimes that strain reaches the point where the best thing for the people - and the business -  is a divorce. 

You’ve all put years of a lot of hard work, long nights, sweat, money and time away from your loved ones into this business. None of you intend to be treated unfairly. No matter how hard things are right now.
 
What should you do? 
 
If you cannot agree an amicable divorce, be clear on your legal position 
Key issues to be certain of:  
·    Can I force my co-founder out as a company director? Can I be forced out? What would it take? In 50/50 scenarios this can be particularly tricky.
·    Can I end their employment contract? How? How much would it cost?
·    Can I force my co-founder out as a shareholder and if not what does that mean? This is typically governed in your shareholder agreement. 
·    What will it cost me if I have to go the legal route to force an outcome? (think money, time, emotion)
·    What harm can they cause me or the business if this goes really wrong and how do I prepare for that? (think about the money in the bank, reputation management if they start badmouthing you to clients or partners, would they stop you accessing systems or IP?)
 
Typically this requires advice from both a corporate lawyer and an employment lawyer.
 
99.9% of the time, once you have done this preliminary exercise, you will conclude that it’s best for everyone and the business to do a deal. 

How do you start the conversation?
 
Here are some suggestions if you struggle with finding the right words:
 
“Can we talk? Look; it’s not been good for some time. We need to talk about it. Here is what I see as the main issues. Here is what I wanted from this business which I’m not getting any more. I’m open to ideas but I have started thinking about what could be a way forward. I know this is a big deal. Do you want to talk about it now or do you want to think about it and we meet again to talk things through?”
 
(Top tip: chatGPT can help you imagine and practise this conversation.)
 
What if you’re not talking anymore?
Sometimes I meet founders who can’t be in the same room, even virtually. If that’s you, you need a third party to evoke the possibility of a split and see whether you can reach a deal between you. Could it be the Chair? A trusted advisor? A mutual friend?
 
Typically you’ll try negotiating the terms of the possible divorce together. But if that doesn’t work or does not feel possible:
 
Introduce the idea of a mediator .
I’m often asked: how do I convince my co-founder to go to mediation? Here’s how I’d go about it:
 
“Look, we are both suffering here, as is the business. Why don’t we get a neutral impartial person in, we focus our attention on this for a day and try to find a solution we can both be happy with?”
 
You can suggest mediators or leave them to find some.
 
It’s the alternative to many hard, painful, uncomfortable conversations where you just get frustrated with one another.
 
Here’s what I hear from founders who have successfully divorced: 

 “ I am so grateful that this is finally done”
 “I am hugely relieved that I can now focus on the business”
“I haven’t felt this positive and excited in a many months”

 
If you want to know more about founder mediation - get in touch. 

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