Business partnerships, like marriages, are entered into with an expectation that it will be beneficial for both parties involved. But, like marriages, some partnerships last a lifetime, whereas others end prematurely. Also, just like in divorces, those dissolutions can either be amicable or fraught with disagreements and bitterness. In this article, we will discuss what happens in the case of partnership dissolution.
What Is A Partnership?
The legal definition of “partnership” is a business that two or more people have created in order to profit.
Reasons To Dissolve A Partnership
There are many reasons to dissolve a partnership. However, the most common reasons are as follows:
- Retirement of one of the partners
- The premature death of one of the partners
- If the partnership consisted of a married couple, then a divorce in marriage might cause a dissolution in partnership.
- Disagreements on how to run the business
- One of the partners wishing to pursue other opportunities
What To Do When A Partner Leaves?
If one partner leaves the partnership, then the remaining partner(s) must figure out what the next steps should be. The first thing that the remaining partner should do is consult the partnership agreement as a properly executed agreement will have taken into account the situation where a partner leaves for whatever reason. Therefore, the partnership agreement will be the prevailing document in determining the outcome of the partnership.
What If The Partnership Agreement Is Silent?
If the partnership is silent on the situation where one partner leaves the partnership, then there are multiple options that the remaining partners can consider. The most common options are as follows:
- Completely dissolve the partnership and business.
- The remaining partner(s) buy out the leaving partner.
- The leaving partner sells their shares of the business to a third party.
- Modification to the partnership agreement.
Make A Valuation Of The Business
Whether a partnership agreement gives guidance or the partners have to exercise another option, when one partner leaves, the remaining partner(s) will want to get a valuation of the business. This valuation can impact the buy-out process or the selling of any shares.
Other Issues To Consider
There are other issues to consider that might not be in the partnership agreement. Other problems may arise should one partner leave or the partnership be dissolved. For example, is the business allowed to continue to use the leaving partner’s name or image? Does the leaving partner maintain any interest in the business or take less of a role in the business dealings? How are payments to be made to the leaving partner? These are just a few of the many issues that can arise when one partner leaves a partnership.
Contact A Lawyer
The attorneys at Dowd Law have experience dealing with partnership agreements and disputes and will advise you on the best course of action for you and your business. Contact Dowd Law for a consultation.