How to get rid of a business partner?

Know How the Business Operates to Remove a Partner

The method a business owner uses to get rid of a business partner will largely depend on the kind of business he or she is controlling. In some cases, a partnership can be canceled when one partner simply tells another “We’re through!” or something similar. However, in corporations, it may be required to take legal action to get rid of a partner. As a rule, the relationships between business partners are addressed by business laws. Some of these regulations can be adjusted or even taken out of a partnership agreement. However, when there is not a signed partnership agreement, as is often the case, then the default rules apply.

How to Use a Buyout Agreement to Remove a Business Partner

Before a business owner thinks about how to remove his or her business partner, it would be a good idea for them to consider this issue before even getting into business. Before opening a company, the partners should create a written Buy-Sell Agreement. This Buy-Sell Agreement acts as a kind of business “prenuptial” contract which details the expectations for how a breakup or removal would be handled. These details should be figured out before the legal relationship even begins. Essentially, a Buy-Sell Agreement is a contract that explicitly states the terms for buying out a business partner and securing his or her ownership interest. The agreement will be sure to mention the price to get rid of a business partner by buying out the business partner.

The Terms of the Buy-Sell Agreement

It can be hard to establish the terms and conditions of a Buy-Sell agreement because it is not easy to predict what will happen in a company’s future. While it is difficult to assign the actual value, it is important to agree on a buy-out price in the beginning of a partnership relationship when the agreement is signed. One of the most useful ways to determine the price is by using the book value of the company’s assets or the past profits of the business. An experienced business attorney can offer advice on how to get rid of a business partner. The buy-sell agreement should also list the names of the people who have the power to buy out a partner, as well as the circumstances under which these individuals have the right to enter into a buyout agreement.

Filing a Lawsuit Against a Business Partner

Another way to get rid of a business partner is filing a lawsuit against them. Depending on the specific situation, a business partner’s inability or failure to do their job could be a matter that can only be resolved in court. It may then become necessary to hire legal help to remove the partner from the company. Some of the most common reasons to file a lawsuit against a partner include breach of contract, breach of fiduciary duty, and conflict of interest. This would mean the partner either did not do their job, competed against the business, or mishandled company funds. The partner who decides to file the lawsuit has the duty of proving the failures of the other partner.

Summary

When a business owner wants to kick out a partner, he or she has three choices: follow the company’s operating agreement, negotiate a buyout deal, or go to court.

If a business has an operating agreement in place, then it does not matter whether the partner wants to be bought out or does not. If an owner secures the necessary percentage of majority votes, then the owner’s choice takes preference.  However, getting rid of a business partner can become a little more difficult if the operating agreement does not have a valuation clause. If it lacks this provision, then there could be an argument about how much the partner’s share in the business is worth.

If the company does not have an operating agreement or the partner will not agree to terms, then the only recourse is taking the issue to court. The court can successfully kick out the offending partner and figure out what he or she is owed.