Forming a business as a partnership is one of the simplest ways to get a business off the ground, but this simplicity can lead to complications later on if partners do not take the time necessary to form the enterprise properly. One of the most common complications business partners face is dissolving the business relationship fairly, especially if there is no written agreement outlining how to do so.
Partnerships end for a variety of reasons, and here is where the straightforward nature of a partnership can get tricky to navigate. In partnerships, each partner receives an equal share of profits and also shoulders an equal share of debts and other liabilities, unless a written agreement outlines some other sharing structure.
For many partners, by the time that the writing is on the wall and a business or relationship fails, or a partner simply wishes to leave, many other conflicts in the history of the relationship impact the partners’ exit negotiations.
If you find yourself struggling to resolve a failing business or simply want to end a business relationship with a partner, it is important to build a strong legal strategy with high-quality legal tools and guidance as you need them. A well-crafted strategy helps you avoid common pitfalls and keep your rights secure while you work toward a fair conclusion.
Review the founding documents
If you created proper founding documents when you began the partnership, you may have had the foresight to include an exit strategy. In this case, the best place to start is reviewing these founding documents to see what they say about the process of dissolving the business or releasing a partner.
However, it is important to recognize that life often throws us into situations that our best-laid plans do not account for, and you may still have some conflicts around the written agreement, particularly if one or both partners have violated the agreement at some point in the past. Keeping your cool and looking at the big picture is often just as helpful as digging into the fine print to resolve these issues.
Understand the raw numbers
Ultimately, releasing a partner or dissolving a business or partnership entirely probably comes with some real costs, and it is important to divide these costs fairly. This may involve a comprehensive business valuation to determine a fair buyout or to create common ground for dividing profits and debts that each partner takes with them.
In many instances, it is useful to reach out to an experienced third party that understands the intricacies of partnerships and other small businesses. In much the same way that a wise coach can help a person reach their exercise goals, experienced legal guidance can help each partner understand the issues at hand and potentially salvage personal relationships even if their professional relationship has reached its end.
Your partnership and its conflicts are unique, because you and your partners are people with your own strengths, weaknesses and preferences. At the same time, it is likely that many other partners have walked through these difficult areas before, and with careful planning and consideration of the legal issues at hand, a fair resolution is possible.
