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

Email  |  Call (888) 600-8654

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.

Please tell us your story:

3 + 5 = ?

See all blogs: Business | Corporate | Employment

What Is a Gap Analysis

What is a Gap analysis?

Gap analysis helps businesses compare current performance with desired goals, identifying inefficiencies. This method aids in developing action plans to bridge performance gaps.
SWOT Analysis Example

SWOT Analysis Example

Conducting an HR SWOT analysis helps identify strengths, weaknesses, opportunities, and threats within and external to an organization. This process aids in developing strategic HR actions aligned with the company's objectives.

Costco Hot Dog Price Story

The story about Costco $1.50 hot dog price began in 1993 when the Costco merged with Price Club. Costco's $1.50 hot dog price remains unchanged in 2024.

Request for Production of Documents, RPOD, CCP 2031.280

Starting January 1, 2020, California's civil litigants face stricter discovery rules under Cal. Civ. Pro. § 2031.280(a). All produced documents must now be labeled by request number, impacting both new and ongoing cases.
What is a default judgment

What is a default judgment

A default judgment is issued when a defendant fails to respond to a lawsuit, allowing the plaintiff to win by default. Understanding this process is crucial for both parties involved in litigation.
What is a quitclaim deed

What is a quitclaim deed

Quitclaim deeds offer a quick way to transfer property ownership without guarantees, distinct from warranty deeds. Ideal for non-sale property transfers among family or into trusts, they require careful legal consideration.
Sole Proprietorship Business License

Sole Proprietorship Business License

Sole proprietorships offer simplicity and fewer formalities for new business owners, with benefits like no separate taxes. Remember, personal and business assets aren't distinct, impacting liabilities and the need for proper licensing.
What is the most important part of your business plan

What is the most important part of your business plan

The executive summary shines as the pivotal element of a business plan, serving as a decisive factor for readers to delve deeper. A comprehensive guide on crafting an impactful business plan, focusing on unique strategies and essential components.
Easy Businesses To Start

Easy Businesses To Start

Unleash your entrepreneurial spirit with these straightforward home-based business ideas, from e-commerce to creative pursuits. Embrace the flexibility and potential for financial independence with diverse options suited for various interests and investment levels.
What is the standard deduction

What is the standard deduction

Understand the IRS standard deduction, a straightforward option for reducing taxable income without needing detailed documentation. Delve into eligibility, amounts for 2023-2024, and considerations for itemizing versus standard deduction.
How to get a business license

How to get a business license

Grasp the essentials of obtaining a business license in California, focusing on local and state-level requirements. Uncover specifics on when and why different types of business licenses are needed.
Why Do Businesses Fail

Why Do Businesses Fail?

Uncover the key factors contributing to small business challenges, including financial obstacles, inadequate management, and flawed marketing strategies. Understand the role of a comprehensive business plan in ensuring long-term success.
What is a BOC 3

What is a BOC 3

Understand the essentials of a BOC-3 filing for transportation businesses in California, detailing the designation of process agents for FMCSA certification. Learn the requirements, costs, and benefits of choosing the right process agent for your business.
Standard deduction vs itemized deduction

Standard Deduction vs Itemized Deduction

Understand the key differences between standard and itemized deductions to effectively reduce your taxable income and potentially save on taxes. Choose wisely to maximize your tax benefits based on personal financial details.
How to calculate net income

How to calculate net income

Unveil the significance of calculating net income for business profitability, a key indicator for financial health and decision-making. Understand the formula and practical applications for determining net earnings.
Itemized deductions

Itemized Deductions: What they mean on a tax return

Optimize your tax return by understanding the differences between itemized and standard deductions, crucial for minimizing tax liability. Learn the benefits and challenges of itemizing to make informed financial decisions.
What are intangible assets

What Are Intangible Assets

Discover the value of intangible assets like patents and trademarks in your business, crucial for strategic and financial planning. Learn how to manage and amortize these non-physical yet essential resources.
What is accounting

What Is Accounting

Understand the importance of accounting in monitoring financial activities and making informed decisions for your business. Gain insight into accounting fundamentals and its role in legal and tax matters.
Dysfunctional family

Dysfunctional Family: Key traits and impacts

Explore the impact of growing up in a dysfunctional family, where constant conflict, neglect, and various addictions shape childhood experiences. Understand common traits, the consequences on children, and the cycle of unhealthy parenting behaviors.
When Was the Great Recession

When Was the Great Recession?

Delve into the Great Recession's timeline, an era of financial distress from December 2007 to June 2009. Understand the causes, including the 2007 housing bubble crash, and worldwide effects.
When Was the Last Recession in the US

When Was the Last Recession in the US?

Review discussions on America's most recent downturn, comparing the impacts and definitions of Covid-19 and the Great Recession. Analyze the significant effects of past economic crises on US policy and business approaches.
What to Invest in During a Recession- 4 Ideas

What to Invest in During a Recession: 4 Ideas

Uncover effective strategies for investing during a recession, assessing personal goals and current market situations. Examine four robust investment approaches to manage through economic declines effectively.
Will the US Get Hit with a Recession in 2024

Will the US Get Hit with a Recession in 2024?

Experts debate the likelihood of a 2024 US recession, analyzing factors like the yield curve and consumer confidence. Predictions vary, with a focus on interest rates and tech layoffs impacting the economy's future.
How Long Do Recessions Last

How Long Do Recessions Last?

Learn about typical US recession lengths and influencing factors, noting recent trends with shorter durations averaging 10 months. Investigate how external factors and government decisions affect recession timelines, comparing historical data.
When Will the Recession End

When Will the Recession End?

Economists predict a mild US recession with limited impact on employment and spending. The duration and impact of the recession depend on Federal Reserve policies and business cycle patterns.

See all blog: Business | Corporate | Employment

© Copyright | Nakase Law Firm (2019)