A business partnership can be problematic when one partner wants out of the business. This scenario could crop up due to many reasons, such as:
- Career or goal changes
- Personal commitments
If you’re on the receiving end of this scenario, what are your options? This article is going to help you out.
Can a partner just leave a partnership?
If your business contains just two partners, when your partner leaves your business, the partnership you have built will need to be terminated. For a legal partnership to exist, it needs to comprise of at least two people. Once the partnership is terminated, you can start a new partnership with other partners or continue as a sole trader.
The Partnership Agreement
A comprehensive partnership agreement is a legally binding contract between all partners. Defining all aspects of the partnership, this agreement stipulates partner rights and duties, partner contributions, the authority to make decisions, allocation of losses and profits, and the management structure. A well-drafted partnership agreement details situations such as the exit, death, or disability of a partner.
A Settlement Agreement
Things can get sticky very quickly in cases of partnership dissolvement, and with reputational damage potentially caused quickly using routes like social media, it makes good business sense to secure settlement as soon as possible.
Your lawyer can help you craft a settlement agreement that addresses crucial business issues such as:
- Non-poaching of staff members
- Non-solicitation of existing clients
- Confidential business information
- Ownership of business assets
- Restriction on joining a competing firm
- Protecting the business’s brand
Can my business partner push me out?
If your partner is actively trying to push you out, your partnership agreement should detail potential terms for the termination. On the assumption that your partnership agreement was drafted well at the beginning of your partnership, the document will contain clauses that may lead to the dissolution of the partnership. Check to see if there are procedures detailed that must be followed to terminate the partnership.
If you are in a situation where there is no partnership agreement in place, and you feel that you cannot reach a resolution, you should firstly cease trading under the current business name. Under these circumstances, the dissolution of your partnership will be governed by the Partnership Act 1890. This act states that without an agreement to the contrary, any one of the partners may issue notice dissolving the partnership and no minimum notice period is required. Regardless of a partnership agreement, you should seek legal advice immediately to protect yourself and your business’s assets.
What if we’re a limited company and one shareholder wants out?
In the absence of a shareholders’ agreement in place, the recovery of shares and will be a matter for negotiation. In effect one party will buy out the other party. If this fails, then court action may follow and/or the company may be dissolved. To resolve a 50/50 quasi-partnership dispute, you will need professional advice.
How to make a partnership termination as painless as possible
Before you go anything, be sure to review your partnership agreement so you are familiar with it. Being aware of your legal rights puts you in a position of strength should the unforeseen happen. Where possible, keep the lines of communication with your partner open. Honest discussions with your partners can ensure a smooth transition when a partner leaves, and maintain the personal relationships between partners.
Hiring a lawyer who is experienced in company law and business partnerships will ensure the fastest and easiest resolution to your partnership termination and potential disputes. I work with business partners to negotiate the partnership legalities to achieve the optimum outcome.