Small business owners invest a lot of themselves in their ventures and in the relationships among the owners. That can make it hard when one of the owners steps away from the business. For some cofounders, this separation can feel similar to a divorce. Business ventures that started with shared dreams and persevered through joint effort can get tangled in misunderstanding, differing expectations, anger or hurt feelings.
Mediation can help business partners get past those issues and part, if not as friends then at least on reasonably friendly terms. With a mediator’s guidance, the owners can talk through how to make the transition in their business in a way that is respectful to the departing partner, the owners who are staying, and the business. Engaging a mediator right away – instead of waiting for a feud to flare up – creates the best opportunity to talk through the terms of the separation openly and fully.
Each business will have its unique issues to address when an owner leaves, but here are a few a mediator may help talk through:
Quantifying Each Co-Founder’s Contributions to the Business
One of the main challenges that arise during a business dispute concerns the relative contributions of each cofounder. One founder may have contributed financial capital and resources, while the other may have contributed sweat equity and expertise. This may be a formal legal issue, or it may not – the owners may well have documented the value of each of their contributions in an operating agreement, defining for everyone each person’s share of the company. That written agreement will help guide the separation. But even then, it may be valuable for everyone to recognize the investment the other partners made to bring their business this far – and to have their own contribution recognized in turn.
If the owners’ respective interests in the company are not defined, this may be a fraught topic. A mediator can ask questions and guide the parties’ discussion (which may get tense at times) over the way each has helped build the business and how best to measure those contributions.
Addressing Non-Compete Agreements
Small business owners are in the day-to-day trenches with each other, doing the work that makes their business work. When one of them leaves, it’s natural for the others to worry they might go to work for a competitor or maybe even start their own competing company.
Again, this might be something the owners already dealt with by including a non-compete term in an operating agreement. But if they didn’t – or even if they did – mediation offers the opportunity to talk about what limits will be placed on the departing partner’s ability to compete and what securing a non-compete agreement is worth to the company.
Managing the Aftermath of the Separation
Another key issue to discuss during mediation is how the parties will handle the messaging after the co-founder leaves the company. How will the business address the departure? Is the departing founder allowed to discuss this action on social media? Will you prepare a shared statement? The more you and the other parties can create clear guidelines about how you will handle the messaging around the separation, the less likely a dispute will arise. With the guidance of the mediator, the parties can work toward a solid set of guidelines that work for both the departing co-founder and the business.
Reach out to Rubric Legal LLC today at (612) 465-0074 to learn more about the mediation process in St. Paul and Minneapolis.