Toolkit · Business
The Business Divorce and Dissolution Toolkit
18 U.S.C. § 1030
- Type
- Toolkit
- Jurisdiction
- National
- Date
- 2026-02-25
- Topic
- Business
This toolkit supplies the documents an owner actually needs when a closely held business comes apart. It opens with a litigation hold notice and a dated chronology template, then a books and records demand letter with the proper purpose language that survives refusal. A related-party transaction log and a normalization worksheet convert raw records into the schedule that decides valuation, and a valuation standard memo frames the argument that is worth more than any other in the case. Model documents follow for a derivative pre-suit demand, a settlement term sheet, a guaranty release schedule, and a closing checklist. Drafting modules supply buy-sell trigger and valuation language, a shotgun clause, a mandatory tax distribution provision, and a deadlock breaker, so the same dispute does not recur at the next company. A dissolution module sets out the wind-up plan and creditor notice sequence. An authority card links the governing federal statutes, regulations, and decisions to their text.
The Business Divorce and Dissolution Toolkit
Business > Owner Disputes and Dissolution | Published 25 February 2026 - Updated 20 August 2026 | UpLaw - uplaw.us
Tools 1 through 3 go out in the first week. The rest of this page depends on them.
Pair with Owner Disputes and Business Dissolution: A Comprehensive Guide to Deadlock, Oppression, Buyouts, and Winding Up and Resolving an Owner Dispute or Dissolving a Closely Held Business: A Practical Checklist.
Tool 1 — The litigation hold notice
Send to yourself, to anyone acting for you, and to the company.
[Date] · LITIGATION HOLD — PRESERVE ALL RECORDS
A dispute has arisen concerning [Company]. All potentially relevant records must be preserved immediately. Automatic deletion, archiving, and overwriting must be suspended.
Preserve: email and attachments · text and chat messages, including personal devices used for business · accounting system data, including audit trails and prior-period adjustments · bank and credit card records · contracts and drafts · minutes, consents, and notices · calendars · voicemail · shared drive and cloud storage contents · backups · any records relating to owner compensation, distributions, and transactions with owner-affiliated entities.
⛔ Do not delete, alter, or move any record. Do not "clean up" files. Do not reinstall, reset, or dispose of any device.
This hold remains in effect until lifted in writing.
☐ See Issuing a Litigation Hold and Preserving ESI: A Practical Checklist. ☐ ⚠ Also observe the prohibitions: no access to systems you have been told to stay out of — 18 U.S.C. § 1030 — and no solicitation of customers or employees — 18 U.S.C. § 1836.
Tool 2 — The chronology
Every line gets a date and a source document. This becomes the exhibit list.
| Date | Event | Category | Source document |
|---|---|---|---|
| Company formed; interests issued | Formation | ||
| Operating agreement adopted | Formation | ||
| Amendment adopted | Governance | ||
| Compensation set / changed | Compensation | ||
| Distribution paid | Distributions | ||
| Distributions suspended | Distributions | ||
| Related-party contract signed | Self-dealing | ||
| Board or member meeting held | Governance | ||
| Meeting held without notice to me | Governance | ||
| My employment terminated | Freeze-out | ||
| Access to systems/banking revoked | Freeze-out | ||
| Buyout offer received | Valuation | ||
| Books and records demand sent | Information | ||
| Response / refusal received | Information |
⭐ Two columns do most of the work: compensation changes and distribution suspensions, side by side. The pairing is the oppression narrative.
Tool 3 — The books and records demand
[Date] · To: [Company], attn. [Manager/Secretary] · Demand for Inspection of Books and Records
I hold a [__]% [membership interest / shareholding] in [Company]. Pursuant to [§ __ of the operating agreement and] the applicable provisions of [state] law, I demand inspection and copying of the records listed below.
My purpose is to value my interest and to investigate possible mismanagement, waste, and breaches of fiduciary duty, including the compensation paid to officers and owners and the terms of transactions between the Company and entities affiliated with any owner.
Records demanded:
- Financial statements for the last [5] fiscal years and all interim statements for the current year.
- Federal and state tax returns for the last [5] years, with all schedules and K-1s.
- The general ledger and trial balance for the same period.
- All minutes, written consents, and notices of meetings of members, managers, shareholders, and directors.
- The capitalization table and all records of issuance, transfer, and redemption of interests.
- All records of compensation to any owner, officer, director, or family member thereof — salary, bonus, benefits, expense reimbursement, and perquisites.
- All agreements between the Company and any entity in which an owner holds an interest, together with all records of approval.
- Bank statements and credit card statements.
- All loan documents, guaranties, and security agreements.
- All leases, including any with owner-affiliated entities.
- The current governing documents with all amendments and the records of their adoption.
- All insurance policies, including key-person and buy-sell funding policies.
- Any valuation or appraisal of the Company prepared in the last [5] years.
- Communications with accountants or appraisers concerning valuation.
I am prepared to execute a reasonable confidentiality agreement covering non-public information.
Please produce within [__] days, or state in writing the specific basis for refusal as to each category.
☐ ⭐ The confidentiality offer removes the most common stated basis for refusal. ☐ ⚠ Do not include your litigation theory. Proper purpose, not a preview.
Tool 4 — The related-party transaction log
| Counterparty | Owner affiliated | Nature | Annual amount | Market comparison | Approved by whom | Documented? |
|---|---|---|---|---|---|---|
| Lease | ||||||
| Services | ||||||
| Loan | ||||||
| Purchases | ||||||
| Compensation |
☐ For each row ask three questions: Was it disclosed? Was it approved by disinterested decision-makers? Was it at market? ☐ ⭐ The interested party generally bears the burden of proving entire fairness — fair price and fair process. A row with no approval record and no market comparison is the case.
Tool 5 — The normalization worksheet
⭐ The single most valuable page in this toolkit.
| Adjustment | Year 1 | Year 2 | Year 3 | Support |
|---|---|---|---|---|
| Reported pre-tax earnings | Financials | |||
| + Owner compensation above market | Comp study | |||
| − Owner compensation below market | Comp study | |||
| + Personal expenses run through the company | Card statements | |||
| + Family members on payroll without role | Payroll | |||
| + Related-party rent above market | Rent appraisal | |||
| − Related-party rent below market | Rent appraisal | |||
| + Non-recurring litigation or casualty costs | Invoices | |||
| − Non-recurring gains | Financials | |||
| + Discretionary spending a buyer would cut | Ledger | |||
| − Required capital expenditure / deferred maintenance | Estimates | |||
| ± Working capital normalization | Balance sheet | |||
| ± Officer life insurance premiums / proceeds | Policies | |||
| = NORMALIZED EARNINGS | ||||
| Weighted average | ||||
| × Multiple / ÷ capitalization rate | ||||
| = INDICATED ENTERPRISE VALUE |
Example. Reported $400,000. Add back $500,000 of excess owner compensation and $95,000 of above-market rent → $995,000 normalized. At 4×, enterprise value moves from $1.6M to $4.0M. ⭐ A 25% stake goes from $400,000 to $1,000,000 on one page.
Tool 6 — The valuation standard memo
Send this before any number is exchanged.
Re: Valuation standard and date
1. The standard. [The operating agreement § __ specifies __ / The agreement is silent, and the applicable standard in this proceeding is fair value.] Fair value means the seller's proportionate share of the enterprise as a going concern, without minority or marketability discounts. Fair market value — a hypothetical willing buyer and seller — is a different standard and produces a materially different number.
2. Illustration. On an enterprise value of $6,000,000, a 30% interest is $1,800,000 at fair value and approximately $1,080,000 applying a 25% minority discount and a 20% marketability discount. The standard is worth $720,000 before any input is discussed.
3. The date. We propose [date], which precedes the events described in the attached chronology. Post-dispute changes in compensation, distributions, and related-party arrangements should be reversed for valuation purposes.
4. Approach. [Income approach — capitalization of normalized earnings], supported by [market approach].
5. Normalization. Per the attached worksheet.
6. Process. We propose a single appraiser with an agreed scope, standard, and date, at shared cost. Failing that, each side retains an appraiser and the parties agree in advance on the standard, the date, and the document set — ⭐ most divergence between experts comes from differing assumptions, not differing skill.
Tool 7 — The derivative pre-suit demand
[Date] · To the [Board of Directors / Managers] of [Company]
Demand pursuant to [state law] to investigate and remedy breaches of fiduciary duty
I am a [shareholder / member] and have been continuously since [date].
The conduct. [Describe with dates and amounts: excessive compensation of $__ paid to __ in years __; a lease with , an entity owned by , at $ per year against a market rent of $; the diversion of the __ opportunity to __ in [month, year].]
The harm to the Company. [Quantify.]
Demand. I demand that the [Board / Managers] investigate this conduct and take action to remedy it, including recovery of the amounts described, termination of the related-party arrangements, and adoption of an approval process for interested transactions.
Process. Given that [name] is interested in each transaction described, any investigation should be conducted by disinterested [directors / managers] or independent counsel reporting to them.
Please respond within [__] days. This demand is made without prejudice to any direct claim, including claims arising from the conduct described in the accompanying correspondence.
☐ ⚠ Check the state's demand and futility rules before sending or omitting this. ☐ ⭐ Note the closely held exception — many states permit otherwise-derivative claims to proceed directly where there is no creditor prejudice or multiplicity risk.
Tool 8 — The settlement term sheet
1. Structure. [Redemption by the Company / cross-purchase by ] of Seller's []% interest. 2. Price. [$__ / determined by a single appraiser applying fair value as of [date], with the normalization adjustments in Schedule A and no minority or marketability discount]. 3. Payment. $[] at closing; balance by note over [] years at []%, monthly amortization, secured by [], with acceleration on default and subordination to []. 4. Reporting. Company delivers annual and quarterly financial statements to Seller until the note is paid. 5. Covenants while the note is outstanding. No distributions above mandatory tax distributions; no new indebtedness above $[]; no related-party transactions outside the ordinary course. 6. Guaranties. ⭐ All Seller guaranties released at closing, or indemnified with [security]. Schedule B lists them. 7. Employment. [Terminates on __ / continues through ]; accrued compensation and reimbursements of $[] paid at closing. 8. Restrictive covenants. Non-solicitation of employees and customers for [] months; confidentiality perpetual as to trade secrets — 18 U.S.C. § 1839. 9. Intellectual property. Seller assigns all rights in work created for the Company; Schedule C lists anything Seller retains. 10. Systems. Access terminates on [date] with written acknowledgment — 18 U.S.C. § 1030. 11. Tax. Reported as []; [no] election under 26 U.S.C. § 754; allocations per 26 U.S.C. § 704 through the closing date; 26 U.S.C. § 736 treatment as agreed. 12. Releases. Mutual general releases, carving out obligations created here. 13. Non-disparagement and confidentiality of terms. 14. Closing within [__] days, per the attached checklist.
☐ ⚠ Solvency. For any large redemption, obtain a solvency analysis — 11 U.S.C. § 547, 11 U.S.C. § 548.
Tool 9 — The guaranty release schedule
⭐ The item most often forgotten, and the one that follows a departing owner for years.
| Obligation | Creditor | Amount / limit | Guarantor(s) | Release obtained? | If not: indemnity + security |
|---|---|---|---|---|---|
| Commercial lease | Landlord | ☐ | |||
| Bank line of credit | ☐ | ||||
| Term loan | ☐ | ||||
| Equipment financing | ☐ | ||||
| Vendor credit accounts | ☐ | ||||
| Credit cards | ☐ | ||||
| Merchant processing | ☐ | ||||
| Utility / service deposits | ☐ | ||||
| Franchise agreement | ☐ |
☐ Ask each creditor for a written release. If refused, obtain a secured indemnity from the remaining owner and the company. ☐ ⚠ A departing owner still on a ten-year lease guaranty has not left the business — see Negotiating and Exiting a Commercial Lease: A Practical Checklist.
Tool 10 — The closing checklist
☐ Purchase agreement executed; transfer recorded on the books; certificates cancelled ☐ Guaranty release schedule completed (Tool 9) ☐ Removed from bank signatory cards, credit cards, merchant accounts, payroll systems ☐ State filings updated — registered agent, officers, managers, annual report ☐ Insurance updated; key-person and buy-sell policies transferred, surrendered, or retained ☐ Intellectual property assignments executed ☐ Systems and data access terminated on the agreed date, with written acknowledgment ☐ Devices returned and wiped per agreement ☐ Customer and employee communications sent as agreed ☐ Note, security agreement, and UCC filings executed and filed ☐ Final compensation and expense reimbursements paid ☐ Tax allocation agreed; final returns and K-1 responsibility assigned ☐ Mutual general releases executed ☐ Non-disparagement and confidentiality signed ☐ Records custody agreed; copies delivered ☐ ⭐ Both parties sign this checklist
Tool 11 — Prevention: drafting language
Mandatory tax distributions — ⭐ the single highest-value clause in this toolkit
"Within [__] days after the end of each fiscal quarter, the Company shall distribute to each Member, pro rata in accordance with their respective interests, an amount at least equal to the product of (a) the Member's allocable share of the Company's taxable income for the period and (b) the Assumed Tax Rate. Such distributions shall be mandatory and shall not require the approval of the Managers."
Deadlock breaker
"If the Members are unable to agree on any matter requiring their approval and such disagreement continues for [30] days after written notice, the matter shall be submitted to mediation. If mediation does not resolve the matter within [45] days, either Member may invoke the Buy-Sell Election set forth in Section __."
Shotgun / buy-sell election
"An Initiating Member may deliver to the other Member a notice stating a price per unit. Within [30] days, the Receiving Member shall elect either (a) to purchase the Initiating Member's entire interest at that price per unit, or (b) to sell its entire interest to the Initiating Member at that price per unit. Failure to elect within the period shall be deemed an election to sell. Closing shall occur within [60] days thereafter on the terms set forth in Section __." ☐ ⚠ Works badly with asymmetric access to capital. Pair it with defined payment terms so a cash-poor owner can still buy.
Valuation standard
"For all purposes of this Agreement, the value of an interest shall be its proportionate share of the fair value of the Company as a going concern, determined without any discount for lack of control or lack of marketability."
Buy-sell triggers
"A Transfer Event occurs upon a Member's death, Disability, retirement, voluntary withdrawal, termination of employment with the Company, entry of a decree of dissolution of marriage that would transfer any interest, bankruptcy, or the invocation of the Buy-Sell Election."
Amendment
"This Agreement may be amended only with the written consent of Members holding [not less than __% / all] of the interests."
Related-party transactions
"No transaction between the Company and a Member, or an affiliate of a Member, shall be entered into unless (a) the material terms are disclosed in writing to all Members, (b) the transaction is on terms no less favorable to the Company than could be obtained from an unaffiliated party, and (c) it is approved by Members who are disinterested in the transaction."
Tool 12 — The dissolution wind-up plan
☐ 1. Adopt the dissolution event and document it ☐ 2. File the statement of dissolution ☐ 3. Cease ordinary business except as needed to wind up ☐ 4. ⭐ Consider a going-concern sale before liquidating — nearly always worth more ☐ 5. Notify known creditors in the statutory form; publish for unknown claims; calendar the bar date ☐ 6. Collect receivables; liquidate remaining assets ☐ 7. Pay creditors in statutory priority — ⚠ owners last; early distributions are clawed back ☐ 8. Reserve for contingent liabilities: leases, guaranties, warranties, employment claims, pending litigation ☐ 9. Final payroll filings; final federal and state returns; cancel registrations, permits, licenses, and sales tax accounts ☐ 10. Terminate leases, subscriptions, and recurring vendor contracts in writing ☐ 11. Distribute the remainder per the agreement or statute ☐ 12. File articles of termination; preserve records for the statutory period ☐ ⚠ If insolvent, stop and consider bankruptcy — 11 U.S.C. § 727, 11 U.S.C. § 1129
Tool 13 — The authority card
| Question | Authority |
|---|---|
| Securities fraud in a buyout | 15 U.S.C. § 78j, 17 CFR Part 240 |
| Control person liability | 15 U.S.C. § 78t |
| Securities Act liability | 15 U.S.C. § 77l |
| Pleading standard | 15 U.S.C. § 78u-4, Tellabs |
| ⚠ Fiduciary breach alone is not securities fraud | Santa Fe Industries v. Green |
| Scienter required | Ernst & Ernst v. Hochfelder |
| No private aiding and abetting | Central Bank of Denver |
| Scheme liability limits | Stoneridge |
| Materiality | Matrixx Initiatives |
| Trade secret misappropriation | 18 U.S.C. § 1836, 18 U.S.C. § 1839 |
| Unauthorized computer access | 18 U.S.C. § 1030 |
| Preferences | 11 U.S.C. § 547 |
| Fraudulent transfers | 11 U.S.C. § 548 |
| Discharge; plan confirmation | 11 U.S.C. § 727, 11 U.S.C. § 1129 |
| Payments to a retiring partner | 26 U.S.C. § 736 |
| Allocations | 26 U.S.C. § 704 |
| Basis adjustment election | 26 U.S.C. § 754 |
| S corporation eligibility | 26 U.S.C. § 1361 |
| Arbitration | 9 U.S.C. § 2, 9 U.S.C. § 3 |
| Arbitration decisions | Concepcion, Kindred, Epic Systems, Morgan v. Sundance |
| Federal forum | 28 U.S.C. § 1332, 28 U.S.C. § 1367 |
Related Documents
Articles
- The Business Divorce: What Happens When Partners Stop Agreeing
- The Lease That Outlives the Business: What a Small Business Signs and Cannot Undo
- Buying a System, Not a Business: What a Franchise Agreement Actually Commits You To
- The Non-Compete in Retreat: Blue Pencils, Trade Secrets, and the Employee Who Walks
- Dividing a Life: How Divorce Courts Actually Split Property, Income, and Time
Guides
- Owner Disputes and Business Dissolution: A Comprehensive Guide to Deadlock, Oppression, Buyouts, and Winding Up
- Commercial Leasing for Small Business: A Comprehensive Guide to Terms, Build-Out, Guaranties, and Exit
- Franchising: A Comprehensive Guide to Disclosure, the Agreement, Operations, Renewal, and Termination
- Divorce and Dissolution: A Comprehensive Guide to Grounds, Property, Support, and Parenting
- Landlord and Tenant Law: A Comprehensive Guide to Leases, Habitability, Deposits, and Eviction
Checklists
- Resolving an Owner Dispute or Dissolving a Closely Held Business: A Practical Checklist
- Negotiating and Exiting a Commercial Lease: A Practical Checklist
- Evaluating, Buying, and Exiting a Franchise: A Practical Checklist
- Issuing a Litigation Hold and Preserving ESI: A Practical Checklist
- Documenting and Pursuing a Fair Housing Complaint: A Practical Checklist
Toolkits