What can you do with a toxic business partner?

How Can Partners Prevent Toxic Partners from Taking Over?

A controlling, poorly behaving business partner can quickly transform a productive business into a problematic company. Unfortunately, we sometimes give selfish partners too much attention and control.

One of the best ways to prevent a toxic business partner from taking over is to prevent the partnership from occurring in the first place. For example, how partners structure their companies often contributes to their downfall. How can this be prevented?

Avoid setting up business partnerships with two or more partners who possess the following:

• Equal ownership
• Equal ability to make decisions

Instead, before the partners form the business, establish which partner is in control. Then, within the partnership agreement, include a statement of control. This statement includes information regarding disagreements.

For example, suppose the controlling partner and a lesser partner cannot agree on an important decision. In that case, the agreement might say that the minority partner can leave the business and have their shares bought out at a certain amount.

While this might seem like a disproportionate setup, the fact that one partner has more power than the others makes disagreements less likely. Disputes often stall equal relationships, but there is much less chance if the partners already know where they stand.

An Example

For example, let’s say that Brown Automotive is a family company with sales of up to $20 million. The founder knew family businesses could be difficult to maintain due to personality conflicts, so he focused on the company’s founding documents.

In the partnership agreement, Larry Brown established a voting trust that gave majority power to his oldest son, Bunker. Bunker’s career was long and illustrious, and he ultimately passed control to his nephew.

However, when Bunker Brown passed on control, he retained two rights:

• He was able to choose Brown Automotive’s next executive
• He was able to set a date for succession

Bunker wants to honor his dad’s company and have new leaders chosen on merit. He also wants his family to be able to continue to work at the company if they qualify for the right positions.

This plan works because it allows for decisions based on merit and cuts down on animosity among rivals. Instead of family members fighting for the top spot, there are rules to follow.

Can Equal Partnerships Still Work?

Many companies and their partners still want to use a 50-50 partnership structure, and equal partnerships can be fruitful with the right partners. However, we recommend that they plan for both success and difficulties and provide themselves with an escape plan.

Before starting a 50-50 partnership, business partners should engage in honest dialogue. They must consider that even if they are getting along very well presently when company problems arise, they may be unable to resolve their differences.

Therefore, 50-50 business partners should collaborate on a partnership agreement that covers future problems. For example, partners could include:

-An agreement to seek mediation

-An agreement to seek a third party to settle the issue and that partners must abide by the decision

-A buy-sell agreement

-A clause dealing with dissolution and the aftermath

Although plans like this may appear pessimistic, they are more realistic. Having an “escape hatch” helps partners understand that disagreements will occur and also encourages them to settle them before they need to consult the partnership agreement for a solution.

Many partnerships are successful and supported by strong relationships among company members. However, the stress and pressure of the business world can turn even the most amicable relationship sour. Plus, all business partners are unique individuals and humans, after all. Many of us have personal or family stressors that challenge us, and some partners become selfish, controlling, or toxic based on outside factors.

Agreeing on an escape plan is equivalent to the partners asking each other, “what if the business falls apart? What if we cannot agree on X? What if I think Y and you think Z?” While imagining these scenarios can be difficult, it is indispensable to the health of the partnership.

How Can Business Partners Deal with Selfish Partners?

Using a partnership agreement to avoid future confrontations is essential, but what if it is too late for that? What about business partners working together for years but finding themselves at a personal and professional impasse?

It is often challenging for partners to extricate themselves from arguments, especially if it feels as though the entire business hangs on the outcome. Unfortunately, many company partners decide to “live with” the personality conflicts that confront them, but this strategy does not work.

For example, Paula and Cindy are partners in a small law firm in Victorville, California. After a few years, the two partners realized their personalities conflicted on nearly every issue. However, rather than dealing proactively with the problem, they decided to endure the tension for the “sake of the firm.”

However, as the years passed, the resentment grew. Attorneys and paralegals divided themselves, as you were on “Team Cindy” or “Team Paula.” Paula and Cindy became more and more openly antagonistic with each other. Cindy stole Paula’s parking spot, and Paula scheduled meetings with clients when she knew Cindy was not available.

Conflict and tension mounted until, ultimately, both women were miserable, and the firm lost much of its business. The partners dissolved their partnership. They much of their profits, and Paula and Cindy regretted letting things get out of control for so long.

The partnership can grow toxic when resentment and tension are left to fester. Therefore, it is vital to deal with problems immediately and confront differences among partners as they occur.

When the family is involved, partnership conflicts grow even more dramatic. For example, Rob is a 60-year-old majority owner of a shipping company he inherited. The business has slowed over the years, so he injects his own money into the business, hoping to return Shipping With Ease to form. Rob’s relationship with the rest of his family is stormy, and he does not ask his retired father for advice.

However, small shipping companies now dominate the market, using different packaging, shipping equipment, and web-based solutions that Rob is unfamiliar with. So instead of asking for help, Rob makes all business decisions alone to avoid conflict.

To make matters worse, Rob’s two daughters, who are minor partners, disagree about every aspect of the business. So instead of coming together to save the company, Rob’s daughters remain locked in conflict. As a result, Rob must sell the business and accept heavy losses and the downfall of his family business.

These examples illustrate the dangers of unresolved disagreements within partnerships. When partners do not deal with company disputes, they grow worse; especially when one partner is selfish or controlling. However, when one partner rationally confronts the other, the situation will veer closer to resolution. This is not to say that all partners can work out their differences through discussion, but they have a much better chance of doing so than if they leave the disagreement unresolved.

Sometimes, the business partners have to affirm that the partnership is not improving. We have noted many situations where a mediator or adviser helps business partners see that they are wasting their time and that there are better prospects down the road.

How Can Partners Ask for Help with a Toxic Business Partner?

Business partners clash for a variety of reasons, and often the solution is to find an individual who will help them:

• Embrace change
• Choose the correct path forward

Usually, struggling partners look to an attorney or colleague they view as unbiased and wise. But, whoever it is, the individual who can help partners find a way forward should be:

• Aware of the situation and knowledgeable
• Readily available with time to focus on the problem
• Well respected in the field

Sometimes, business partners opt for an individual who is more of an “outsider” for help diagnosing problems and crafting a plan to move forward. This person should:

• Agree to stay confidential about the company’s problems
• Experienced in issues of reconciliation

While both of these strategies can work, partners who disagree significantly must be aware that whomever they choose, it is still up to them to resolve the situation. Of course, the individual they choose to help them will offer unbiased opinions and inspire reflection and dialogue, but these “helping hands” are not miracle workers.

Lastly, business partners who seek outside help with their problems should agree on the cost beforehand. Unfortunately, some of these helpful “consultants” charge high fees to match their experience and compensate them for their time.

Negotiations with an Outside Party Present: How Do They Work?

Some business partners think the solution to all their problems will immediately appear because they have hired an outside mediator. However, even having the most effective agent does not mean that the company should rush the process.

Often, agents begin the process by speaking with each partner separately. This strategy helps pinpoint where each company partner sees things going wrong. In some cases, the partners never sit down together, but this is rare. Usually, the agent brings the partners together when the time is right to talk through their plans.

The focus in all of these conversations is on making new choices instead of remaining stagnant. Of course, partners need to acknowledge their disagreements and past mistakes, but the goal is to move forward, not backward.

Different mediators offer different suggestions, but usually, these themes are expressed in discussions with agents of change:

• The business partners have the final say. Other people may help them to understand each other and figure out options, but the final choices are all up to them.
• The goal is a win-win situation where both or all partners feel satisfied. However, the partners must also be ready to give something valuable up for the good of the solution.
• Good solutions take time, and solutions that the partners can agree on that stand the test of time take even longer. However, dialogue is normally the way to generate ideas that last, so partners who disagree should be willing to speak patiently.
• Partners are individuals with unique talents. Unfortunately, they also possess unique weaknesses. Excellent partnerships fit these puzzle pieces together, but sometimes people grow apart or seek to move in different directions. It is up to the partners to realize what their company needs from them and provide it. If they cannot work together, it might be best to move on.
• Dialogue and agreement are not the same concepts. Each partner should be able to find acceptable solutions without compromising their positions.
• The written partnership agreement or operating agreement may contain information that will help foster a new agreement. Use these founding documents to move closer to the goal.

All business partnerships are unique, but hopefully, these tips will help partners rid themselves of toxicity and embrace change. Next, let’s look at how partners can cleanly resolve their disputes.

What Steps Can Partners Take to Resolve a Disagreement?

Partners who disagree can work to resolve disputes in a variety of ways:

Continue with the Partnership

Partnerships are based on two or more individuals whose skills complement each other. When both partners are doing their jobs, they support the business equally, albeit in different ways.

For example, if one partner is more of a mathematician while the other is more of a people-person, they can use these skills to create harmony. The partner who crunches numbers can do the books, while the partner who loves conversation and making deals can run meetings or work the front of the house. The key is that both partners feel confident in the skills and responsibilities of their partners.

When partners disagree, however, they lose confidence in each other. As a result, their work suffers, and their faith in each other erodes. Sometimes, both partners push on with their work but refuse to communicate, and their separate tasks do not come together to form a coherent whole.

It is essential to acknowledge these problems to save the partnership. First, however, partners must define their roles more clearly if they choose to carry on. Assigning new roles and duties to each partner helps see the business in a new light.

Sometimes, a new committee, such as a board of directors, is introduced. This “third party” can also help inspire parity in the company and enhance the skills of those already on board.

Although there are means to save the company and continue the partnership, sometimes it is not worth it. When the relationships at the basis of the partnership are too unstable, there is insufficient support for the business. In addition, a lack of honesty is often at the heart of a problematic partnership. For example, one partner may not be willing to recognize their inadequacies as a partner. If they cannot do so, it is best to move on with a different venture and a new partner.

• Mediate the Partnership

Many company partners view “asking for help” as a sign of weakness. However, we live in a world with licensed professionals ready to help. Why not contact them?

If one business partner is involved in a toxic dispute with another, all the listening in the world may not help them see eye-to-eye. The debate will continue to bounce back and forth because there is no point of reference.

However, bringing in a neutral third party often changes the dispute’s dynamic. Many company partners succeed with professionally trained mediators to handle disputes.

A qualified mediator often encourages quicker resolutions by providing an unbiased view of the problem. Usually, both partners listen to an individual who has no interest in the disagreement and holds no sense of favoritism towards either side. Mediators also provide fresh eyes on the issue and follow up with a brand-new perspective.

Once the parties hammer out a compromise, a mediator can review it to ensure it works to their advantage. In addition, mediators enhance negotiation simply through their presence and help eliminate anger and vitriol from the room. Even the most toxic partners usually do not want a stranger to hear them hurl insults or blame each other.

Sometimes, a professional mediator is the best bet, and mediators can be colleagues or friends. However, remember that the mediator’s most important qualifications are neutral and unbiased.

• Agree to Take a Step Back

Vinny and Barbara are siblings who work in a furniture business alongside their father, sisters, and mother. Their father is the CEO, and Vinny and Barbara are active in management. Their mother works at a lower level than them, but being their mother, she feels that she must be a part of every decision.

The presence of all the different family members meant too many different opinions in the business. As a result, the business suffered, and buyout ideas were considered but never felt right.

Finally, the family hired a chief executive to lead the company. Jennifer, the chief executive, requested:

• Control of the company through a voting trust
• Resignation of all family members, including Vinny and Barbara

Although the family did not welcome Jennifer’s requests, they finally agreed. The furniture business prospered under Jennifer’s direction, and Jennifer eventually bought the company from the family, satisfying everyone.

Taking a step back and ceding control of a business to a new CEO is a bold step and can be difficult. However, sometimes this is less due to the fault of the partners and more based on the company’s growth. Once a business reaches a certain size, it will fall apart much more quickly without experienced managers making decisions.

However, how does one find the correct person to take over? Many business owners find that through networking, they can find a capable and well-qualified person to take over their business. Offering valuable incentives also helps motivate leaders to try out a new challenge.

Before hiring someone new to run the business, the partners should meet and decide on the goal. For example, is the goal to overcome their disputes by stepping back from the business, or is the goal to get the business in the best possible shape before selling it?

• Agree on a Buyout

In simple terms, buy-sell agreements (also called buyout agreements) lead to the same result: one partner ends up with the company, and the other partner ends up with the company’s monetary worth.

Nick and Zach, for example, were business partners who disagreed more than they agreed. The two partners ran a grocery store in Santa Clara, CA, for five years and argued about everything, even the terms of a buyout.

Nick and Zach asked the store’s lawyer for her opinion, and he suggested that Nick and Zach submit sealed bids to buy the store.

Zach submitted a lower bid and lost the store. However, the process helped him to realize that, in reality, he didn’t want to run the store anymore. So, after some time off, he talked to Nick. He told his old business partner he wished him luck and took the blame for most of their disagreements.

Sometimes, it is clear which partner should be the owner. However, if business partners are having trouble figuring it out but cannot agree on the terms of a buyout, either, they should ask themselves: which partner has the most of the qualities below:

• Experience
• Motivation
• Knowledge of the business
• Dedication to the business
• Energy for the business
• Willingness to take the financial risks
• Skill in the specific capacity

Whoever possesses more qualities may be the better candidate for the new owner. But, the buyer must be willing to take the economic risk of owning a business alone.

What if Business Partners Cannot Agree?

Focusing on solutions to problem partnerships makes sense, but some company partners simply cannot agree. For example, when relationships turn toxic or one partner is narcissistic and controlling, it may be impossible for partners to find common ground. In this case, what should be done?

When partners cannot agree, the goal should be to find a strategy for achieving gains for both partners. If both partners feel they get a “win,” they will be more apt to agree with the terms of a deal. For example, if one partner is more effective at running the company than the other, they may benefit. As a result, they can agree to make a portion of the company’s sale price contingent on the business’s future performance.

When business partners cannot agree on prices or buy-sell terms, and there is no logical candidate to take over the business, it may be time for an auction.

Auctions: Three Options

• In the first option, one partner bids for the business at a specific price and terms. This bid is a proposal, not an auction, meaning the other partner is free to accept, pass on, or negotiate the offer.
  
  
• In the second option, partners submit sealed bids that include terms and their chosen price. The highest bidder takes the company and buys out the other. The partners may agree to specify things like discount rates and down payments. They might also agree on the number of stock shares the seller will hold against future payments.
  
  
• In the third option, one business partner bids on price and terms. The second partner decides whether to accept the proposal or continue and buy out the bidder themselves.

Dividing the Business

Sometimes, partners own multiple companies and can separate them to prevent future personnel issues. Although dividing the business or businesses can create conflict among the partners, if they can get through the process, it can help prevent future issues.

When the business partners divide their businesses, they need to figure out compensation for each partner. Of course,’s partners’ compensation depends on the value of the part of the business they take over, so valuation also figures into the equation.

Not all companies can be divided in this manner, and not all businesses have multiple parts, of course. But if the company enduring toxic conflicts fits the bill, dividing the business is a viable option.

Sell the Company

When toxicity and mistrust invade a business, sometimes selling the entity is the right call. For example, if business partners acknowledge that they cannot solve their personality conflicts, a direct sale to a third party is a sensible choice.

If problems plague a company, the owners often want to avoid passing these problems on to the next generation. This concept is especially true in family businesses.

Other times, the business partners struggle with management or finances, and no remedy is available. Sometimes, the partners cannot agree on a buyout or a similar gesture because they are so mired in conflict.

Selling the company to a third party can be a financial success and provide the partners with seed money for new ventures. However, hammering out the terms of the deal is normally a challenge, and we recommend contacting a business attorney with experience with company sales.

We also recommend that the partners employ an individual to help them sell the business as a “seller.” This sales agent (also known as a dealer or negotiator) can provide unbiased advice on the sale of the business. They also normally have connections with people or entities who have the ability and desire to buy a new company. Sales agents can also help business partners:

• Locate buyers
• Valuate the business
• Negotiate a purchase agreement that the partners are happy with
• Present the company for sale
• Deal with legal matters of the sale
• Deal with tax matters of the sale

The partners must choose a seller with experience in buying and selling companies. It also makes sense to ensure that the individual who partners trust with their company has earned great reviews and strong recommendations.

Liquidate the Company

Liquidating the company is an additional option that business partners may find useful. Put simply, if the business owns assets, such as real estate, then the company may be able to be liquidated by selling these assets.

Liquidation is similar to selling the business since the partners sell their assets for profit. However, before selling assets, the partners must agree on who gets what, and usually, partners want assets of similar value.

Liquidating differs from dividing the company because the company ceases to exist, and the partners leave to go their separate ways with the value of their assets.

If the time has come to move on from the current configuration of your business, then hopefully, one or more of these solutions will work. When poor personal relationships and toxic partners bring the business down, there are options for recovery and rebuilding. All partners need to know that there are viable solutions out there.

How Can Partners Find a Way Forward?

When business partnerships crumble, the partners are left picking up the pieces. These jagged pieces are:

• Ownership of the business
• Control of the business
• The company’s survival

All business partners have conflicting opinions, and disagreements can be productive in diagnosing problems and coming up with new solutions. However, significant disputes that lead to distrust and even hatred sometimes cannot be withstood.

Partners are often unsure whether they can continue on and if it makes sense financially and personally. As a result, they stop enjoying going to work and dream about starting a new venture with new people and ideas.

When partnerships become toxic, business partners must know they have rights, and that some solutions exist. Company partners should also know, however, that whatever they decide to do with the company next, they will need to make some sacrifices.

Hopefully, this article has shown partners that it is possible to move on from a troubled venture in an intelligent, productive, and practical manner. Business partners should also know that desperate actions such as threats and theft are never the answer. However, sometimes legal action is the next logical step, and when a lawsuit is an answer, it is vital to contact an experienced business attorney.

Need Assistance in Dealing with a Controlling Business Partner? Contact Nakase Wade Today

Even business partners who accomplish their collective goals sometimes fall into trouble. Humans are vulnerable to emotions, and all people change over their lifetimes. Sometimes, business partners begin their careers as a productive teams, but that team falls apart due to disputes, mistrust, or toxic behavior.

Often, disputes are caused by manipulative or controlling business partners. When one’s partner behaves negatively, the entire business suffers.

However, if the other partners handle the situation with self-control, make rational choices, and contact a skilled attorney, they can move on successfully.

If your business partner has become controlling or the relationship has become toxic, we encourage you to try to remedy the situation before dissolving the business. Conversation and mediation are excellent ways to overcome the divisive personality issues that sometimes plague partnerships.

However, sometimes the business must be dissolved so everyone involved can move on. Other times, the partners must sell the company or negotiate a buy-sell agreement. Our California business lawyers and corporate attorneys have helped many business partners negotiate successful dissolutions, and we are here to answer all your questions about the process.

In life and business, conflicts are unavoidable. However, business partners cannot allow toxic partners and disputes to damage the companies they have worked hard for. Hopefully, the above tips will help you solve the problems caused by partners who become problems.

For further help with business disputes, questions about dealing with controlling business partners, or legal questions of any nature, contact Nakase Wade.