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Ethical Issues That Can Complicate the Winding Up of a Business

Regardless of how “airtight” you and your partners (or co-founders) tried to make your operating agreement when you started up your company, you may not have been able to anticipate every hypothetical circumstance that would eventually develop. Furthermore, the breaking up of any business venture nearly always includes at least one individual who may try to unfairly profit from the breakup – or at least not deal appropriately with everyone else.

After all, dividing up the company's assets and determining which clients can remain with specific company founders is rarely simple.

 In an American Bar association newsletter article entitled, “Breaking Up is Hard to Do: Ethics Concerns When Your Firm Splits Up or When a Lawyer Leaves for Another Firm,” Peter Geraghty explores a number of dynamics that are fully applicable to the winding up of many different types of business entities.                                                                                                 

Here are some of the other ethical issues he addresses that you're very likely to face as your business winds down.

Key Ethical Challenges Facing a Dissolving Business

  • Fiduciary duties. Each member of the firm must bear in mind that he/she has a legal fiduciary duty to all of the others in regards to fairly handling the division of the firm's assets and debts (this topic is discussed in a bit more detail below);

  • Choosing who has the right to keep working with specific clients. You will need to determine which members of your company have the right to keep doing business with specific clients. Furthermore, you're going to have to carefully present your thinking about this dilemma to all of your clients – always making sure the clients’ best interests remain the key focus;

  • Access to file and records. Directly tied to dividing up clients is the issue of how long you will allow each other to have access to specific client files. Companies never breakup in a complete transactional vacuum – some departing members may need added access to certain files to complete specific projects before leaving;

  • Outstanding company fees owed to the firm – and remaining debts. Hopefully, you carefully addressed the precise percentages you would try to honor upon any future breakup of the company in your operating agreement. If you failed to do this – or if different firm members are interpreting the operating agreement terms in unique ways – you should seriously consider bringing in an outside mediator to help you resolve such disputes. Whatever decision is reached should be formalized in a binding legal document – and signed by all key members of the company or firm.

“Winding Up” or “Breaking Up” Is Truly a Challenge

Always keep in mind that your current clients’ best interests are at stake. Do whatever is necessary to safeguard both their property and general business needs while you're firm breakup is taking place. They deserve your very best and should never suffer any losses due to your firm's activities.

 

To obtain help with handling all of your Georgia business planning needs, please contact the Law Offices of Shane Smith today.  You can schedule your free initial consultation with a knowledgeable Peachtree City estate planning attorney by calling: (770) 487-8999.


Shane Smith
Advocate for the Seriously Injured in Georgia