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“The business partnership is a relationship, and like any relationship, each is as unique as the individuals who are involved in it.”

Kimberly Childs and Heather Wagner represent majority, minority, and equal owners of privately held businesses in disputes with their fellow business partners.

Kimberly Childs represents business owners whose business partnerships are no longer viable. Her practice focuses on negotiating and litigating the break-up of multi-owner privately held businesses.

A leader in her field, Kimberly has been recognized as a Georgia Super Lawyer Rising Star by Atlanta Magazine for the past four years (2009 to 2012) and a Legal Elite by Georgia Trend magazine. Additionally, she currently serves on the Cobb County Bar Association Board of Trustees.

MO: What are some of the most common reasons you see business partnerships breakdown?

Kimberly: The business partnership is a relationship, and like any relationship, each is as unique as the individuals who are involved in it. At the core of every business divorce is a loss of trust. When partnerships form, everyone involved trusts each other implicitly. When that trust dissolves, so does the business relationship. Most of our matters involve disputes over (a) the handling of the company’s money, (b) control of the company, or (c) division of the business assets. When the parties disagree, and the trust is gone, owners are willing to fight to protect their business interest.

MO: What advice would you give to a small business owner who is currently in dispute with their business partner?

Kimberly: The first thing we do with all of our new matters is carefully review the business’s governing documents. If the business is a corporation, then those documents are the by-laws and any shareholder agreements. If the business is a limited liability company, then those documents are the operating agreement and any member agreements. If there are no agreements, then we know that the statutory defaults set by law will apply. These documents (or the default statutes) will provide the framework for any negotiations or litigation over the ownership or control of the business.

MO: Is there anything that partners can do when first forming their business that can protect both parties down the road?

Kimberly: If you have partners in your business, you need to define that relationship in writing, preferably in your company’s governing documents. If for no other reason than it ensures that everyone agrees and is on the same page at the beginning. In preparing those documents, you should discuss and agree upon an exit strategy. While form agreements that you can buy in an office supply store or on-line will hit the high points, an experienced attorney can help you and your partners identify issues and address them for your unique situation. Of course, that attorney will charge a fee, but I promise it will be smaller than my fee if we have to litigate.

MO: What considerations should be taken into account when creating an exit strategy?

Kimberly: Although not comfortable, the business partners should brainstorm and think about how they want to handle the various scenarios that might cause them to no longer work together. These could include death, disability, one of them wins the lottery and no longer wants to work, or one of them decides they just don’t like the other. If they agree on how to get “out” while they still like and trust each other, then that decreases the chance of expensive litigation down the road. Key ingredients to an exit strategy should include triggering events, timing, who will bear the costs of the separation, valuation of the business, taxes, ownership of any assets (especially intellectual property), and how to handle deadlock if the owners cannot agree.

MO: What are some steps that can help prevent a “business divorce?”

Kimberly: That’s easy. Don’t have any business partners. Often I see business owners make key employees a part-owner in return for years of loyal service. In my opinion, that is usually a mistake because you cannot “fire” a co-owner like you can terminate an employee and business owners have a difficult time truly accepting that employee as their equal. I encourage business owners to consider other ways to reward that employee. For example, add a robust profit sharing component to the employee’s compensation plan OR include the employee in all major decisions. That way, if things turn sour, you can handle your business without interference.

If that’s not possible, communicate openly, honestly and frequently during good times and bad. Recognize that trust is important and do all you can to protect it.

MO: What’s the most exciting thing on the horizon for you personally or professionally?

Kimberly: Our firm is putting together a new “product” for our clients, and we hope to roll it out in early 2014. Many of our clients just want to know what their rights and responsibilities are under their company’s governing documents (e.g., by-laws, operating agreements, etc.). We are working on flat-fee on-line option to allow clients to submit their documents to our office electronically, and then we will provide them with a report – prepared by an attorney licensed to practice in Georgia – explaining their documents in plain English. Many of our clients are busy working professionals and taking a half-day off to visit with an attorney is not feasible. And while our flat fee in person consultation allows the client to meet with an attorney face to face to DISCUSS their documents, many clients prefer to have a written document that they can refer back to in the future. This new “product” will hopefully address both concerns and provide value to our clients.

 

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