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We Are Getting a “Business Divorce.” Who Gets “Custody” of the Customers?

Many times, two 50% owners possess different areas of expertise and separate spheres of influence.  For example, it is not uncommon for one business partner to be in charge of sales, with the other in charge of finances.  Because of this, one person often has more contacts than the other.  Presumably, but not necessarily, the shareholder in charge of sales will have more customer contacts than the one who runs the front office.

This often leads to a misunderstanding about what happens in the event of business divorce litigation, or even voluntary separation.  For example, in one recent case, a 50% shareholder who was in charge of sales believed the customer contacts were “his,” and that he could take them with him to a new, competing company.  While he might have been able to do so after tendering his shares (and thus no longer owing a fiduciary duty to the company, or his co-owner), he did not realize that doing so would substantially impact the value of his shares.

For example, if he were bought out, his 50% interest in the company would have been worth $X.  However, by taking “his” clients to a new company, he took a substantial portion of that value with him.  As a result, he was entitled to substantially less than $X for his shares.

In another case, one shareholder left the business and simply started soliciting “his” customers (again), not realizing that doing so violated 1) his fiduciary duty (since he was still a shareholder), and 2) the restrictive covenant contained in his Shareholder Agreement.

It is one thing to believe that you have certain rights if you have confirmed your belief with an attorney.  But these owners both put themselves in bad positions by acting on their faulty beliefs, then seeking legal counsel after the fact.  Please save yourself tens of thousands in legal fees and ask for business divorce advice up front.  If it’s too late, and you are already in shareholder dispute litigation, seek counsel from someone who handles such matters routinely.