What to Do When Your Business Partner Needs to Go
Business partnerships dissolve for many reasons. Entrepreneurs may have different ideas about the direction of the business, specific operational decisions, or simply have a different way of working than the other. Regardless of the reasons behind a partnership split, it is important to proceed in a deliberate way in order to prevent long-term legal and personal complications.
Consider the Effects on the Business
Even if the decision to end a partnership begins as a private discussion, it will eventually become public. That means clients, employees and other members in the industry will eventually know of the split. Before you decide to ask your partner to leave, consider how it will come back to the business.
For example, does your partner have the ability to take important clients to a new startup? Will a messy fight add to declining employee morale and, therefore, poor customer service? Does the image of infighting in the company make the company seem less reliable, and therefore hinder its ability to collaborate with vendors and contractors?
Discuss the Matter Calmly
If the relationship is untenable, one-on-one discussion is important. Take this step with a reasonable and calm tone. Choosing to ask your partner to dissolve the business relationship is a significant business decision. If it seems like you acted out of haste, the steps that follow may be less agreeable than you want. It’s a good idea to have a clear sense of what dissolution will look like from a legal and business perspective before meeting with your partner.
Consult any Legal Agreements
You may or may not have any legal agreements in place with your partner. Those agreements should be your starting point. Typically, a partnership agreement contains provisions that lay out how a company is divided, including ownership of assets, shares, and buyouts. Even if you do not have a partnership agreement, you likely lease office space, own business equipment and draw salaries from the business. Look closely at the legal paperwork to see what a division of the partnership will mean for you as individuals, and for the company.
Meet With Legal Advisors
In order to make sure the process of dissolution is done correctly and fairly, it is always advisable to meet with the experts. Even if you do have a partnership agreement in place, the division of assets and responsibility for debt can become complicated. You want to resolve those issues now to avoid legal repercussions later.
Both partners, including the one who’s asked to leave, might want to meet with their own lawyer. That way, they can get independent advice as to what’s best for them. Especially if you do not have a formal partnership agreement, you may need an attorney’s advice as to the scope of your rights and responsibilities. If you don’t clarify that at the time of dissolution, it can cause greater headaches to other.
Ask Your Accountant for Advice
Businesses come down to money. Your accountant, or other qualified financial advisor, should provide the full effect of the dissolution on the company. For example, does it affect the tax position of the business? Is the business liable for any ongoing payouts to the former partner? Will the dissolution result in the loss of clients, and therefore, reduced cash flow?
Disclosure the Event to Others
Once the decision is made to end the partnership and all the technical details are resolved, you can tell others what is going on. You can tell employees during a staff meeting in advance of a public announcement. Remember the business reputation is at stake, so it’s always a good idea to remain cordial about the choice to end the relationship. In general, you can speak respectfully about the departing partner and reassure stakeholders the business will continue in due course.
Ending a partnership is always challenging, but you’re not the first to take on that challenge. With the right knowledge and advice, you can protect the business and your professional reputation.