Can You Force a Business Partner Out?

Partnership agreements and partnership law guide business partnerships. The partnership agreement determines when and how one partner may force another out of the business. Business partnership law controls the procedure for forcing a partner out if there is no partnership agreement.

Brad Nakase, Attorney

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What Happens When a Business Partner Tries to Force Another Out?

Like any relationship, business relationships can be complex to navigate. And sometimes, despite one’s best efforts, a business relationship must come to an end. When one or both partners in a business want to end their relationship, it is in the best interest of the company and themselves that it be performed amicably.

In the event one partner is trying to force out the other, then he or she will have to follow the regulations and procedures detailed in the partnership agreement. If there is no such agreement in place, then the partners must follow state and federal laws in order to successfully and legally dissolve the partnership.

An individual may be concerned about a business partner forcing them out of the company and what they can do in response. In this circumstance, they are likely wondering whether their partner can legally force them out.

What Is a Business Partnership?

A business partnership is a form of legal relationship that makes up the ownership of a business. A business partnership consists of one or more partners who share ownership of the business and share both the profits and losses. As opposed to corporations, business partnerships do not exist as separate entities from the individual owners.

Generally, partnerships must register with the state in which they conduct business. A business partnership is usually formed and controlled by a written agreement known as an operating agreement. This operating agreement may address the following subjects:

  • The management of the partnership
  • The distribution of profits and losses
  • The resolution of disputes between partners
  • The dissolution of the partnership
  • The distribution of assets upon dissolution
  • The procedure by which a partner may exit the partnership

So, can a business partner force another partner out of the company? The answer to this question may likely be found within the company’s operating agreement.

Can a Business Partner Force Another Out of the Company?

If a business owner or their partner wants to dissolve the company, or one partner is trying to force another out, then there are legal rules and consequences that should be reviewed by all involved parties. Before anything, the involved parties should review the company’s operating agreement. This agreement will contain provisions concerning the resolution of disputes among the company’s partners. A common provision often included in operating agreements is known as a buyout provision. A buyout provision allows partners to decide to sell their share of ownership interest in the company. These kind of provisions also offer procedures for partners to buy out other partners under particular circumstances.

If a company does not have a written agreement, then state law offers rules and solutions that can apply to the specific situation. Most times, a partner can force out another partner only if he or she has violated the partnership agreement or has broken state or federal laws. Still, if a partner did not violate the partnership agreement or commit any illegal acts, he or she may still be forced out of the partnership if a court decides that the partnership should rightfully be dissolved.

If a business partner succeeds in pushing another out of the business, the forced-out partner may have the right to receive profits and inspect the business’ books and records.

Will the Courts Become Involved in the Dissolution of a Partnership?

If the dissolution of a partnership results in a lawsuit, then the courts will naturally get involved. To ask the courts for the dissolution of a partnership, a partner must demonstrate one or more of the following situations:

  • The economic function of the partnership has been unreasonably damaged
  • Another partner has participated in conduct that makes it impractical to continue business
  • It is not reasonably possible to carry on the partnership in compliance with the partnership agreement

If the courts decide to dissolve the company, then the petitioning partner will likely receive a share of the profits from the sale or buyout.

What Should an Individual Do If Their Partner Is Trying to Force Them Out?

If an individual finds themselves in the unfortunate position where their business partner is trying to force them out of the company, then he or she should do what they can to protect themselves.

The best way to protect oneself from being pushed out of the business relationship is to put protective provisions in the partnership agreement. To do this, one should consult with an experienced business law attorney who can help craft a suitable partnership agreement. This agreement will detail the rights and obligations of the partners and include the procedures for buyout, dissolution, and sale.

If an individual faces being forced out by a business partner, then he or she has the right to receive compensation, as well as the right to review business records. If the other partners fail to allow either, then the partner in question should be sure to write a letter demanding these privileges. If the partners still do not comply, then the partner may file a claim in court.

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