Partnership Attorneys Helping with Partnership Splits
When it comes time for a partner to leave a partnership, it always comes down to two types of departures: contested and uncontested. Uncontested departures are always the easiest even though it may be difficult to negotiate the specifics, and contested departures are always the hardest, sometimes leading to the destruction of the business if not properly handled.
Uncontested Departures of a Partner
Leaving a partnership takes planning and foresight. In an uncontested departure, you and your partner(s) will collaborate and negotiate the terms of departure, ultimately signing a “Separation Agreement” without undue legal expense or court costs. Some of the partner(s) may be unhappy about certain issues, or in the fact that a partner is leaving at all; but in the end, everyone will “do the right thing” either because they have to or because they want to.
A separation agreement is critical in such a departure. This protects the remaining partners from the departing partner (or his or her estate) later should the business do well, and this protects the departing partner from liabilities or other problems incurred by the business after departure. All parties should insist on a professionally drafted partnership agreement.
After the departing partner has left, the formation documents of the business may need to be updated or revised. The departing partner should be removed from the Articles, contracts and other related partnership documents.
Contested departures are the worst. They can be emotionally draining, ruining of a business and extremely costly. What matters most in a contested departure is an honest valuation of the business, along with the wording of the formation documents of the partnership. If the partnership is a limited liability company (or LLC), that will be the Operating Agreement. If the partnership is a corporation, those documents will be the bylaws, and possibly a shareholder agreement, buy-sell agreement and more. If the partnership has no documentation, you must look to state law depending on the type of entity it is or has been run as.
In all instances of a contested departure, it’s important to know your rights, options and obligations. Only experienced business lawyers can give you the proper advice to protect your interests and hopefully save the business. Contact Business Law Southwest, LLC to talk to an experienced partnership attorney.
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