5 Tips: How to Dissolve a Partnership as Painlessly as Possible

In Break-ups & Partnership Disputes, Dissolve a Partnership, Partnership Dispute by Larry DonahueLeave a Comment

Closing (called dissolving) a business partnership can be compared to a divorce, from a cost and emotional impact to the partners. Neither party expects the relationship to degenerate into contention, but it happens more often than you might think. Whether business circumstances change, or some dispute arises between the partners, when the business partnership cannot endure, it’s time to legally sever the ties.

Simply “walking away” is a very bad idea — because if you don’t leave and dissolve the partnership properly, problems can come back to bite you in the a$$ sometimes years after you left.

What are the tips to terminate a partnership with the minimum of stress and expense? The prestigious Young Entrepreneurs Council (YEC) suggests:

  1. Look at the partnership agreement. Hopefully, you began the business by drafting a valid partnership agreement with a clearly outlined exit strategy. This exit strategy should detail the procedures each party will follow, should one partner decide to leave or should other circumstances lead to a business break-up. It should address issues such as who will keep which business assets, how existing customers and accounts will be handled, etc. If you don’t have a partnership agreement (hint: if you have a LLC, look for the Operating Agreement), then you have two options: If you and your partner can agree on terms, then you need to put those terms down on paper, and if you cannot agree with your partner, then consult with a business attorney in your state to see what the state requirements are for closing down a business.
  2. Swallow your pride. Resolving disputes through litigation is ALWAYS a very lengthy and expensive process. Is it worth it to take your disagreements to court? Maybe, but maybe not. It’s always wise to swallow your pride and try to negotiate an amicable resolution in order to minimize the cost to your wallet and your reputation. What we always say is, “Would you rather pay us lawyers to MAYBE get a result you want, or throwing money into the problem to DEFINITELY get the result you can live with?”
  3. Discuss your ideal outcomes. Sitting down with your business partner and talking about your desired outcomes can be very beneficial. It gives you a chance to strategize and look for opportunities to help each other reach your future goals instead of sabotaging each other. Don’t be afraid utilize an unbiased mediator that doesn’t represent either of you — that means you should try to keep the lawyers out of it as long as possible.
  4. Keep your customers in mind. Never lose sight of your customers’ needs, even in the middle of a contentious business dispute. Your professional reputation and client base are on the line. If you treat existing clients poorly now – even without intending to – you may damage your future prospects.
  5. Consult a professional. Hiring an attorney to protect your interests may be the best business decision you ever made. A lawyer experienced in these complex matters can prove to be an invaluable resource and advocate.

Of course, don’t be afraid to talk to an attorney or other trained professional. It’s always a good idea to know what your options are and to have someone verify that you’re closing down things properly, even if you can come to an amicable solution with your former business partner.

Business Law Southwest (BLSW). Business law that makes business sense. A Slingshot company.

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