Tuesday, January 4, 2011
Breaking Up Is Hard To Do
Although you hope it won’t happen, you need to plan for the day when you and a business partner will decide to go your separate ways. Thinking it through up front can prevent a lot of angst and bad feelings later.
In addition to deciding who will own the rights to the images, if you’re going into business with someone else, you should discuss the various scenarios that may occur in the future. The goal here is to avoid the typical default statutory provisions governing corporations, LLCs and partnerships, which contemplate the distribution of business assets to the owners or partners after the business has satisfied its creditors, and in some instances, contemplate the liquidation of the business in order to simplify the distribution of assets.
Consider, for example, what may happen if one of you wants out of the business. While the concept of buying out a business partner’s interest may be simple, the nuts and bolts of these issues are hardly trivial, and are further complicated by the possibility that the business will be more valuable in the future (due to the acquisition of equipment and other property or to the business entering into contracts with clients, or both). Will the person who wants to continue operating the business have that right? How will the departing owner’s interest in the business be valued? And when will the departing owner be paid for his or her interest? Indeed, if the person who wants to carry on the business alone can’t afford to buy out the interest of the departing owner in one lump-sum payment, the result may very well be shutting down the business and liquidating its assets.
Even the issue of valuation isn’t as simple as it may appear. Ordinarily, valuation involves consideration of a business’ equipment, contracts, accounts receivable and other assets, less its debts and obligations, and attempting to arrive at a value at a given point in time. Adding intangible rights to the equation, such as copyrights and trademarks, can significantly complicate the issue. In some cases, it may be difficult, if not impossible, to assess the future licensing or sales value that copyrighted images may have; likewise, it may be difficult to place a value on whatever goodwill a business has developed with its customers and the consuming public. However, if you and your business partner agree at the outset how these sorts of rights will be valued for purposes of handling a buyout, you can avoid the acrimony associated with fighting over the value down the road.
Even if you and your business partner decide that the best thing to do is simply shut down the business should one of you decide to move on, it’s still important to discuss the ramifications of this possibility when forming the company. For instance, if the business is to shut down, you should still consider who will take responsibility for (and presumably receive the benefits of) any customers who have contracted with the business. Since client relationships tend to involve a personal component, nobody who has taken the time to work with a client and develop a relationship wants to let the client down by simply saying that the business is ending and won’t be able to honor its contract, if for no other reason than doing so may damage the relationship and discourage the client from sending business to the photographer in the future.
Once you’ve considered the various future scenarios, even if the possibility of such scenarios playing out seems remote, the decisions made regarding those future scenarios should be conveyed to an attorney so that the terms will be included in a formal, written agreement that will be signed by the business owners.
Business breakups need not be heated or emotional experiences. There’s no reason why photographers’ business ventures can’t begin and end without hard feelings or a loss of mutual respect for one another. The key to avoiding acrimony, however, is deciding issues relating to the breakup of the business when the business is formed, leaving nothing to fight over when the time comes to wrap up the business.
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