How to get rid of a 50 50 business partner?

What is a Buy-Sell Agreement, and Will It Help Remove a Business Partner?

While Buy-Sell agreements are an intelligent idea, they can also prove to be challenging. Even the most experienced business partners cannot predict the future, and it can be daunting to attempt to set up a business not only for success but possible failure. However, Buy-Sell agreements are useful and should be valued when forming a business.

An additional challenge for business partners comes when estimating the value of the business, especially when trying to figure out what the company will be worth in X number of years. Finally, the partners must agree on a buyout price when signing the Buy-Sell agreement.

One of the easiest ways to estimate the company’s price is by examining the business’ assets or past profits. These figures should provide insight and inform the company’s assigned value.

Contacting a skilled business lawyer is also helpful when negotiating a Buy-Sell agreement. An attorney can analyze the business’s value, look at future projections, and help partners zero in on a number.

Buy-Sell agreements should also include the names of the people who will have the power to buy out a partner and the justifications for a buyout.

What Terms Should a Buyout Agreement Include?

When experienced business partners must remove a partner from the business, they do not struggle as much as new entrepreneurs. Why? Because experienced partners anticipate that problems may occur and address the issue before the business starts up.

When business partners come together to form a business, they should write a Buy-Sell Agreement. This document is a company’s prenuptial agreement and outlines the partners’ expectations for handling prospective dissolution.

Buy-Sell Agreements typically include:

-The terms for buying out a partner in the business

-Instructions for how the partner who is removed can maintain their ownership interest

-The buyout price

For example, Crissy, Gina, and Julia run a hair salon in Solana Beach, California. Experienced hairdressers and business partners, when they formed Cuts R Us, the three women negotiated both a partnership agreement and a buy-sell agreement. Unfortunately, after four excellent years, the business floundered. Once the most enthusiastic partner, Gina went through a divorce and lost her passion for hairdressing.

Crissy, Gina, and Julia scheduled a meeting, and in it, Gina admitted that she had lost her passion for the business and was thinking of moving to Boston, Massachusetts, for a new start. Although Crissy and Julia were surprised, they took the adversity in stride, and all three women consulted the partnership agreement and then read over the buy-sell agreement they created years ago. Since the agreement featured specific terms that the women had agreed to, Crissy and Julia were able to buy out Gina’s share so she could go on her way. They also consulted an experienced lawyer, who was able to answer a few of their important questions.

Although the meeting could have easily turned contentious, all three women were able to rely on the facts, and they parted ways as friends. Today, Cuts R Us does a fast-paced business, and Gina has a new job in Boston.

Can Filing a Lawsuit Help Remove a Business Partner?

Not every business partner has the experience or foresight to sign a Buy-Sell agreement before creating a new partnership. When partners launch a business, there are many different tasks to complete, and the partners are usually both busy and excited. However, is it still possible to remove a business partner if there is no Buy-Sell agreement? The answer is yes: there are other channels that partners can pursue.

One of the ways that one partner can remove another is by filing a lawsuit. Taking legal action against a partner is a serious choice, but when one’s livelihood and income are on the line, it is sometimes the correct decision.

When partners seek legal representation for help with removing a partner or dissolving the partnership, they usually do so based on:

• Violation of contract
• Violations of fiduciary duty
• Conflict of interest

When partners do not respect their signed partnership agreement, it may be time to contact an attorney. Additionally, when business partners decide to place their interests over those of the business, they can be found guilty of breaching their fiduciary duty. Sometimes, business partners decide to start other businesses or help other companies compete with their original ventures. These conflicts of interest are detrimental to the partnership and the business.

When business partners commit serious offenses, their partners need talented attorneys they can rely on. Even without a Buy-Sell agreement, partners must quickly and effectively deal with business partners who damage the company. In addition, the pressure is on the partner filing the lawsuit since they must prove that their partner committed an offense. Therefore, it makes sense for the wronged partner to contact a lawyer.

For example, Dan and Chris run a sandwich shop called Napkins in Santa Barbara, California. The two sandwich artists are also shrewd businessmen, and for two years, the business has been excellent based on their tasty concoctions. However, during the third year of the business, Chris begins behaving recklessly. Instead of spending his work hours making sandwiches and running the cash register, he spends all of his time telling customers about his side business, a hang-gliding venture called Come Hang With Me.

When Dave notices and tells his partner that his behavior is damaging the business, Chris tells Dave that Chris doesn’t believe in Napkins anymore and only cares about his new company, Come Hang With Me.

Dave consults their business documents, but the two old friends formed Napkins quickly and casually, never thinking about the future and not anticipating that a rift could develop. Nevertheless, Dave tells Chris that since he is violating his fiduciary duty to the small business they created, he will file a lawsuit against him. Ultimately, Dave’s lawsuit is successful because he has documented evidence of Chris’ actions. The court awards Dave the damages he sought, and he vows that they will create a Buy-Sell agreement before adding another partner.

Can One Partner Dissolve a Partnership?

Any partner may dissolve a business partnership at any time. In the case of more than two partners, a majority of the partners must consent to dissolve the partnership. Even if a company’s situation is currently positive, it is essential that all business owners and partners:

• Are you prepared to terminate the partnership
• Are you aware of the steps to dissolve a partnership

As is true in any field, disputes among business partners are a normal part of business and occur regularly. However, all partners should know how to terminate the partnership if things deteriorate or realize it is time to move on and part ways.

Whether the business is a limited liability corporation, a partnership, or a corporation, business partners should know how to bring the partnership to a quick conclusion if the situation is not redeemable.

When a business partner seeks to terminate their agreement, one of the first things they should do is refer to their partnership agreement. Ideally, the partners created and signed the agreement when creating the company, and the document addresses what happens when disputes arise. When a document addresses termination, all the involved partners have something to fall back on when the business falls apart.

Business partners considering terminating the company should also possess a buyout agreement. Buyout agreements usually include:

• Options for partners if and when disputes arise
• Instructions on terminating the business
• Instructions on firing a partner

Additionally, business partners should also have discussed and documented an exit strategy if they encountered irreconcilable disputes.

Business partnerships often result in success for everyone involved. At the same time, partnerships are risky ventures dependent on an unpredictable combination of personalities, goals, and strategies. While we wish we could say that all business partners fulfill their duties, many partners fail to meet their obligations.

When a business partner is negligent or dishonest, they put the company at risk. Likewise, when business partners disobey their fiduciary duty and prioritize themselves over the business, they discredit and damage the company.

Disputes among business partners are often unavoidable. While some of these disputes are redeemable, just as many end in dissolution or termination. For business partners who wish to succeed, the key is to deal effectively with a problematic partner. Business partners who are struggling with their partnerships should ask themselves honest questions such as:

• Is a buyout the answer?
• Is litigation the best option?
• Whatever I choose, will my business interests be protected?

A skilled attorney can help answer these questions and support business partners as they negotiate difficult relationships and seek to do what is best for the company.

When Should a Partner Dissolve the Business?

When business partnerships begin to fall apart, many partners attempt to salvage them. However, sometimes partners cannot repair the issues, pushing them apart.

At this point, partners may have several options depending on the circumstances. For example, a business partner can contact an attorney and attempt to remove the errant partner through litigation. Or, a partner may be able to consult the partnership agreement and Buy-Sell agreement and buy out their partner’s share.

We recommend pursuing these courses of action first, especially if the individual wants the business to continue. However, the other option is to dissolve the business. When the partner dissolves the business, they will begin “winding up” the company. Winding up a business typically consists of a few different actions, including:

• The business pays off debts and liabilities completely
• The business selling off assets
• The partners divide any leftover proceeds between each other

Dissolving a business often becomes an unpredictable process, and it can become volatile, especially when one partner accuses the other of an offense. Contacting an attorney for help with this process will ensure that the process proceeds smoothly and that the partners respect each other’s rights and the sanctity of the business.

For example, Frank and Jason run a small software company in Palm Springs, California. After just a year, Jason’s fiancé takes a job in Australia, telling Frank he will be moving with her. On the other hand, Frank has had enough of running the company and wants to return to graduate school.

The two partners dissolve the business and begin “winding up” the software company. They contact a business attorney, who helps them ensure that all of their debts, and paid liabilities are taken care of. The two partners split the money left, shake hands, and wish each other well in their respective pursuits. Even though Frank and Jason dissolved their company without much tension, they remain glad that they had professional legal help with the matter.

How Does One Partner Terminate a Business Partnership?

When it is clear that one partner wants to terminate the partnership, there are many different options available to them. Many of these options differ regarding both process and the expected outcome.

While a partnership can be dissolved based on one partner telling the other, “this is over,” usually, the partner should pursue litigation. When an individual simply tells their partner that the working relationship is over, they have essentially “ended” the partnership. However, dissolving a partnership has legal ramifications that partners cannot ignore. Additionally, sometimes the errant partner becomes stubborn or halts the process.

According to business law, partners should follow specific protocols when seeking to remove a business partner. While the exact process and its order may depend on the situation, here are the steps that partners usually follow:

• Talk to the Partner

We realize that sometimes, partnerships become volatile, which is not always doable. However, when situations grow complex, communication is vital. The other partner or partners should attempt to speak candidly with the partner whom they want to remove. Do not be afraid to bring a list of notes or questions to review in the meeting. For example, partners might ask:

– Should the partnership be dissolved?

– What are the obligations of the partners?

– Is everyone in favor of the partner’s removal or dissolution?

– Will the partnership continue if the partners remove a partner?

– How will the business deal with its debts?

– How will the business deal with future liabilities?

– What is the process for winding down the business?

• Return to the Partnership Agreement

When the partners started the business, they agreed on specific rules and provisions. As a result, this signed document acts as a guide that governs the partnership. Often, the partners included provisions for dissolution. For example, sometimes, the partners agreed that they needed a certified majority vote to terminate the partnership or remove a partner.

• Notify other Parties

Once a formal decision is made and the partners have voted and accepted, it is time to spread the word. The business must notify employees, landlords, government entities, customers, and clients. It makes sense for partners to divide these duties and agree on a formal announcement for media use.

• File a Form of Dissolution

All companies must file a dissolution of partnership document with their state. This form’s purpose is to formally announce the partnership’s termination. Do not overlook this document because it clearly explains that the partners are no longer part of a shared partnership and are, therefore, not liable for the company’s debts. Forgetting to file this form could complicate financial matters and elongate the process.

• Close Company Accounts

Closing company accounts is just the first step: partners should ensure that their creditors know the business is dissolving. Next, partners should close business bank accounts and credit accounts and follow the partnership agreement rules regarding asset distribution.

No partnerships shut down in the same way. Sometimes one partner is left alone, and sometimes the partnership goes from five partners down to two. The way the business distributes assets corresponds to the configuration of the partnership and the original partnership agreement. Since payouts can quickly grow complex, we suggest contacting an attorney to ensure that all accounts are properly closed and all company assets are collected and sent out.

Not all business partners will need to consider these rules, but the steps outlined above should be helpful in removing a business partner and dissolving a partnership properly.

How Can Nakase Wade Help Individuals Remove A Partner from a Partnership?

Sometimes, partners can dissolve companies easily. In some situations, one partner can remove another without hassle or concern. However, removing a business partner can also be a difficult process that causes emotional stress and even financial losses.

When one partner tries to remove another, and the decision backfires, the negative ramifications can include:

• The business being discredited
• Business funds becoming stolen
• Property damage
• Relationship damage and emotional stress

At Nakase Wade, our business lawyers and corporate attorneys have successfully helped many professionals remove their partners from the business. We know the process can be difficult and time-consuming, not to mention stressful for partners. However, our lawyers focus on your needs and priorities, so whether you want to successfully remove an errant partner from the company and carry on or dissolve the business, we have you covered.

In our initial free consultation, our lawyers will examine the company’s documents and note all relevant details. Then, we will provide you with options. We do not tell our clients what to do—we listen and provide choices. Every client is different, and every relationship among partners is also unique. We aim to provide solutions and secure the outcome you are hoping for, so you can get back to work.

Contact Nakase Wade today, and let’s tackle the problems with your present partnership, so you can keep your eyes on your business future.