Breaking up is hard to do, even when that breakup is a professional one. If it’s time to part ways with your business partner, you probably already realize the process will be complicated. You’ll need to make some important decisions, then work up an agreement that ensures both parties are satisfied. Here are a few things you should know if you’re facing a partnership split.
Consult Your Partnership Agreement
When you started the business, you probably had a stack of paperwork. If you signed legal agreements, you should have something in writing addressing how things will be handled if the partnership doesn’t work out. Look for a document called a Buy Sell Agreement, which states whether one partner is allowed to continue to run the business if the other decides to exit. Legally, you’ll be required to adhere to anything you put in writing when you agreed to form the partnership.
Check State Statutes
If you go through your paperwork and find nothing regarding a partnership breakup, state statutes are your next step. You’re given the legal right to dissolve your partnership under the Uniform Partnership Act, but each state finetunes this to its own preferences. The California Uniform Partnership Act of 1994, for example, gives partners the right to disassociate from the partnership at any time, at which point the partner’s interest and obligation ends.
Buying Out a Partner’s Interest
There are multiple directions you can go when you break up with a partner. If one of you decides to continue to operate the company alone, that person will need to buy out the other partner’s share, which may mean calculating the business’s total worth and offering your partner a dollar amount for half of that. For best results, request an independent valuation and draw up legal agreements that release your partner of any interest in the business.
Dissolving the Business
In some cases, the best option is to close the business and divide the assets. You’ll need to update your records with the state and pay all your debts off first. From there, tally your assets and make an agreement to divide everything up. If neither partner wants items like business equipment and furniture, sell it and split the proceeds.
Although breaking up a business partnership can be uncomfortable, if both parties handle things professionally, the dissolution can be amicable. A legal professional can help ensure your breakup checks off all the legal boxes, as well as helping guide you through the process to keep conflict at a minimum.
