Every exit has unique dynamics that dictate our approach in engineering a successful sale. In this series, we explore challenges and solutions to common situations.
When Business Partners Split
It can be bitter, sweet, or a combination of the two. What we know for sure is that just as no two partnerships are alike, each partnership exit is unique. Engineering a successful business exit requires an ability to think through and around problems. Furthermore, working with family members, spouses, and longtime business partners calls for an abundance of emotional intelligence to navigate the exit without hard feelings towards the relationship. Our approach includes both; we enter each client meeting with the understanding that:
Emotions Are Everything
The emotional environment is key to designing an exit that works for all parties. Is the partners’ relationship in a good place or a bad place? Is the company making money, or is it struggling? There are certainly advantages to an amicable underlying sentiment and a stable business. The question then becomes, are they going in the same direction? Where a conflict exists, we simply need to address it—not try to tip-toe around it. Emotion is one of the most trying factors in selling any business, especially one that includes multiple partners.
Partner Roles Are Critical
Sometimes, business partners work equally together in such a way that one could conceivably continue to run the business on their own. Others work in one area of the business that is crucial to the company’s success and, therefore, indispensable; for example, when one partner drives 90 percent of sales and another runs daily operations. During a partnership buyout, we help by considering projected performance post-close, without the partner(s), to determine whether and how to separate the company.
Deal Price and Structure Are Crucial
In many cases, partners may disagree about price, creating an opening argument. The deal structure can become a point of contention as well. Buying out a partner with company profits can leave the business depleted for the remaining partner(s). If the business doesn’t have profits to draw from, successfully engineering the sale entails increased creativity.
In any event, we know one thing: failure is not an option. We have to make it work—for the partners, for their families, and for the business. It is so much more than a split; it is Exit Engineering on a human level. We are every bit as ready to help mediate as we are to orchestrate.
How do you end a 50/50 partnership?
Ending a 50/50 business partnership is not as simple as cutting operations and closing your doors – however, it doesn’t have to be wildly complicated either. When business partnerships dissolve, the individuals involved cease to be partners in a legal sense. Even then, the partnership will continue until all of the business debts are settled, the business’ legal existence is terminated, and all of the company’s remaining assets have been distributed.
All in all, there are five key steps to take when looking to end your 50/50 business partnership.
- Reviewing Your Partnership Agreement.
Suppose either you or your partner chooses to end the partnership. In that case, you will have to review the legal partnership agreement to make sure you properly follow the protocol listed in the document when ending the partnership. Typically, some kind of majority vote to dissolve the business is required in the agreement.
- Discuss the Choice to Dissolve With Your Partner.
You started this business with your partner, so you should find time to have an open and honest discussion with them about ending it. Both you and your business partner need to talk about obligations – things like future liabilities and the business’ debts, and how you plan to transition out of the business.
- File a Dissolution Form.
You’ll have to file a dissolution of partnership form in the state your company is based in to end the partnership and make it public formally. Doing this makes it evident that you are no longer in the partnership or held liable for its debts. Overall, this is a solid protective measure.
- Notify Others.
Make sure to inform your employees, customers, landlord, government entities that have issued a license or registered your business, and any other involved party of the dissolution of the partnership.
- Settle and Close Out All Accounts.
Tell your creditors about the dissolution of the partnership as well. Before you finalize the dissolution, you will want to make sure that all of your debts are paid. Then, close all business bank accounts and distribute all assets according to the partnership agreement. Seek legal advice from a business attorney if you don’t have enough funds to pay the partnership debts and liabilities.
Can I force my business partner to buy me out?
If you’re planning on leaving your business but your partner doesn’t want to buy out your shares in the company, you may be left scratching your head when it comes to your options. In legal terms, your business partnership is a single entity, and thus, the situation can become increasingly complicated when one partner wants to sell and the other partner refuses. The question of whether or not you can force your partner to buy out your shares falls largely on whatever is outlined in your written partnership agreement. Written agreements are usually formed at the inception of the business and discuss the duties of each partner and profit distribution percentages. Most partnership agreements have buyout or sellout provisions that specifically outline how the two partners should handle these situations. Usually, these buy/sell provisions will give a partner a choice on whether or not to sell their ownership interest. However, in other cases, the document may say that one partner can buy the other out if specific requirements are met. Your ability to force your partner to buy you out of the business partnership depends on the partnership agreement. Check your agreement to see what needs to happen when one of you wants to leave the business.
Can a 51 owner fire a 49 owner?
Some partnership agreements allow the majority owner to fire the minority owner. These decisions can be documented in the agreement and are enforceable. Nevertheless, majority owners are not allowed to fire minority owners or force them to sell without this type of agreement. However, majority owners can make life incredibly miserable for the minority owner, ultimately forcing them to sell.
To give an example, if the minority owner is employed by the business itself, the majority owner would be able to terminate that employment. Due to the fact that one of the key benefits for minority owners in a small business setting is employment, this can take away the main reason for the minority owner to remain invested. To put it simply, a 51 owner can make the 49 owner want to leave the business.
There are, however, some legal protections for minority owners when it comes to abuses by majority owners. Either way, both parties should consult with a business or corporate lawyer to better understand their legal rights and the best course of action.