Do you want to breakup a partnership but lack the know-how? If YES, here are 4 different ways you can get out of a business partnership with minimal losses. A business partnership can be a wonderful opportunity—varying skills, someone to help generate ideas and strategies, and of course, shared risk. But also note that with shared risk come certain liabilities.
For instance, if your partner does something to lose an important client or incurs debt, your finances suffer too. Worst case scenario, if they get into a nefarious situation that lands you in court, you are just as liable for the damages as they are.
Aside that, personal conflict also arises even in age long relationships. Maybe one partner isn’t doing enough, or isn’t pulling their weight, or you are simply not seeing eye-to-eye on the direction of the business. As a result, things have become hostile.
Table of Content
- Factors to Look Out for Before Initiating a Partnership Breakup
- 3 Few Reasons Why Partnerships Split
- a. Somebody isn’t doing enough
- b. Disagreement on fundamental business decisions
- c. Different working styles cause daily strains
- 1. Change How It is Weighted
- 2. Buy Out Your Partner’s Stake
- 3. Dissolve the Partnership Altogether
- 4 Tips to Remember When Looking to Get Out Of a Business Partnership
- i. Leave Emotions At The Door
- ii. Determine Your Priorities
- iii. Don’t Go It Alone
- iv. Create an Encompassing Dissolution Plan
Factors to Look Out for Before Initiating a Partnership Breakup
Breakups are tough. And nowhere are they tougher than with business partnerships. It is like a divorce with additional complications. And most of those are financial complications. You may not be able to salvage the personal relationship, but you can save yourself some money and hassles as you bring an end to your business partnership.
But one thing you have to consider first is your written partnership agreement. When you started the partnership, did you create a written partnership agreement, prepared by a competent attorney that includes specifics about how to end the partnership or how to continue with changes to the status of one or more partners?
Normally, having a partnership agreement in place makes the process of getting out easier, and you may decide it is worth it to continue. Without an agreement, closing tends to take longer and be more expensive.
Howbeit, if there is no partnership agreement, the partners will need to be able to work together to find common agreement. Although having a difficult partner may be the reason you are leaving the partnership, you will just have to find a suitable way to get through it.
3 Few Reasons Why Partnerships Split
When issues build over time and the problems interfere with business and/or personal health, common problems gradually become potential deal breakers. Some of the most common reasons why partnerships break include:
a. Somebody isn’t doing enough
Note that unbalanced share of responsibilities tends to leave one partner with more of the stress. Business partners, much like parents, friends, and roommates, often need to have a sense of balance in the relationship to avoid issues. Anytime it seems as though one partner is doing more and the other is enjoying more of the benefits, relationship issues can arise.
That is why it is important to maintain balance and keep open lines of communication because the term balance can have many definitions in business. One of the partners may feel as though they are unfairly burdened by running day-to-day business operations.
While the other, who may consistently bring in big clients on the sales front, feels as though they are not getting enough credit. Have it in mind that once partners feel they can’t express themselves; the imbalance can exaggerate into irreparable relationship problems.
b. Disagreement on fundamental business decisions
Indeed disagreements are a fundamental part of every working relationship. However, to move past fundamental differences in business philosophies and decision making, business partners are expected to know how to effectively collaborate. Note that when compromise is hard to reach, disagreements can become unresolved operational issues. Disagreements on personnel, finances, and customer service can deepen any issues amongst partners.
c. Different working styles cause daily strains
Even in personal and professional partnerships, different personality types often come together, conjoined in a sense of excitement about an idea or product. But, that unity can be negatively affected by an incompatible mixture of working styles.
Note that some people see business operations as a routine and value consistency. Others prefer to do things when they feel like it instead of using a schedule. These different styles could cause issues that may degenerate into splits.
3 Different Ways to Get Out of a Business Partnership
Whether you want out of a business partnership or are seeking ways to make it work better for you, consider the following options:
1. Change How It is Weighted
If your commitment to the business outweighs any personal disputes or challenges, then this is an option to consider. With this option, although you still remain in the partnership, you assume a majority stake in the business, while your partner takes a backseat without the expense of buying them out.
However, note that you will have to revisit your partnership agreement and come to an agreement as to how you will share profits and assume new roles and responsibilities.
2. Buy Out Your Partner’s Stake
If you still have intentions to continue the business but alone (and your partner is willing), you have the option of buying out your partner’s share of the business. Note that this offers you the freedom to continue in business, relatively uninterrupted.
However, it is advisable you seek out the help of an acquisitions lawyer to help with negotiations process. You will also need a solid understanding of what your business is worth—this can get daunting especially since you are not just valuating your books and future earnings.
Another important factor to consider is the monetary value your partner’s expertise contributes to the business. Or you can consider financing as an option. Getting a loan can be tricky because you are not technically investing back into the business.
The transaction may also be seen as a risk by a bank since you are taking the business in a new, unchartered direction. Or you can even choose to pay back your partner over time in installments—again, something to work out with a lawyer.
3. Dissolve the Partnership Altogether
Most times, the most adoptable and cleanest way to get out of a partnership is to completely put it behind you. First you will have to refer to your original agreement and your dissolution plan. If it was well – written, it should state clearly important details such as how debts will be assumed, how contracts will be handled, and other important elements that need to be tied up before dissolution.
Note that you will also need to adhere to state laws that govern the dissolution of partnerships. In addition, if you want to continue in the same line of business, you will need to come to an agreement about how customer relationships are handled.
4 Tips to Remember When Looking to Get Out Of a Business Partnership
As issues and tensions rise, business partners can decide to take the high road or turn a business split into a personal vendetta. Since business arrangements are known to gravely impact personal financial security, separating personal feelings from decision – making is very crucial. However, if you reach the point of no return, here are tips to keep your business split professional;
i. Leave Emotions At The Door
Once the business partnership ultimately does not evolve, the ideal way to get out gracefully is to keep matters as dispassionate as possible.
If the problem really is your business partner, don’t play the blame game, instead focus on explaining what your needs are instead, which can range from preferring a different work environment to needing a certain guaranteed income to support your family or even wanting to work in a different industry altogether.
Agreeably, your business partner will probably take this personally. But if you focus on your needs and how the business can’t meet them, there is little your business partner can argue with.
ii. Determine Your Priorities
Take your time to dictate the business matters that are most important to you. Carefully evaluate the financial and operating consequences of a buyout, business classification shift, or another solution. Know what outcomes will make you happiest five years from now! Explore tax liabilities, your personal financial situation, and your future professional goals before deciding on any terms not previously agreed to in a dissolution plan.
iii. Don’t Go It Alone
There are many legal intricacies in dissolving a business partnership. The easiest way to deal with them is to have a “pre – nup” in the form of the partnership agreement. Nonetheless, whether you have one or not, always seek legal counsel to ensure all liability or risk is addressed and that you come out of the partnership with a fair and equitable way forward.
iv. Create an Encompassing Dissolution Plan
If you have finally decided to end the partnership, and even if you have a partnership agreement, you will need a plan for the process of dissolution. Note that the SBA states that a dissolution plan should begin with a review of the state of your business.
Also make plans for notification to all stakeholders, including employees, contractors, vendors, and, of course, customers. As is the case with all major business changes, it is important to preserve the goodwill of the business (even if it is being dissolved). Add these decisions to your dissolution plan.
Getting out of a business partnership can be a challenging experience. You may feel guilty, and be tempted to discount what you are entitled to. So remember to have a strong team advising you – accountants, attorneys, and coaches – and you will get the counselling you need to get out of the situation as quickly and inexpensively as possible.