How Do I Remove a Business Partner from a Partnership?

Do you want to know how to get rid of useless business partner? Business partners can be removed from a company by looking at the standards and procedures in the partnership agreement. Alternatively, look for a “buy-out” paragraph in the contract to force a business partner out.

Author: Brad Nakase, Attorney

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How Do I Get Rid of Useless Business Partner, example?

Karen and Gina are partners in the business venture “Beauty Trader,” a company that sells skincare products and makeup. For the past two years, Karen has not been performing her job to the degree that she promised at the start of the partnership. Karen is constantly on vacation, and Gina has witnessed her schmoozing with a competitor at a beauty convention. In general, Gina has come to believe that Karen is utterly useless as a partner. Gina would like to know how to remove Karen as a partner so that she can find someone better. However, she is concerned that by removing Karen, the business may suffer or fall apart. Gina wonders how best to remove a troublesome business partner.

What Is the Best Way to Remove a Business Partner?

It can be a great business decision to start a partnership. This is because two or more people allows a company to benefit from combined talents and opinions, which can lead to greater success. In fact, few businesses achieve such success with only one owner. That said, if a business owner chooses a bad partner, the results could be dangerous to the business. It is possible that while handling the many responsibilities and duties of running a business, conflicts arise between the company’s partners. If the situation continues to deteriorate with no resolution in sight, then it may be necessary to fire a problematic business partner. But the question is: how does one end a business partnership? Regardless of whether a business is structured as a corporation, a partnership, or an LLC, it is critical to know how to fire a business partner. This knowledge can help prevent a dispute from growing and turning into a death sentence for the company.

It is therefore necessary for every business owner to know how to fire a partner if the need ever arises. The first step should be to have a written agreement that addresses the structure of the partnership, including how to handle disputes between partners and the conditions that one should follow in the event of arguments. It is also a good idea to have a separate buyout agreement which is signed by all of the partners. These kind of agreements detail what should happen when arguments arise and how to fire a partner if necessary. Finally, a business owner should have a sound exit strategy prepared in case a partnership dispute turns into an irreparable problem.

It is a common belief that starting a business partnership is a risky move, because many partners do not meet their responsibilities and duties to the company. Negligent behavior can result in arguments between the partners and even a decrease in profits or loss of money. Most times, the negligent partner can be removed from the company without legal action, but this course can be expensive for the business. Another method used to remove a troublesome partner is to negotiate a buyout. It is critical to understand the rules regarding the removal of a business partner in order to protect the interests of one’s company.

Know How the Business Operates to Remove a Partner

The method a business owner uses to remove a partner will largely depend on the kind of business he or she is controlling. In some cases, a partnership can be canceled when one partner simply tells another “We’re done!” or something to that effect. However, in corporations, it may be necessary to take legal action to get rid of a partner. As a rule, the relationships between business partners are addressed by business laws. Some of these regulations can be adjusted or even taken out of a partnership agreement. However, when there is not a signed partnership agreement, as is often the case, then the default rules apply.

How to Use a Buyout Agreement to Remove a Business Partner

Before a business owner considers how to remove his or her business partner, it would be preferable for them to think about this issue before even getting into business. Before opening a company, the partners should establish a written Buy-Sell Agreement. This Buy-Sell Agreement functions as a kind of business “prenuptial” contract which details the expectations for how a breakup or removal would be handled. These details should be ironed out before the legal relationship even begins. Essentially, a Buy-Sell Agreement is a contract that explicitly states the terms for buying out a business partner and securing his or her ownership interest. The agreement will be sure to mention the appropriate price for buying out the partner.

The Terms of the Buy-Sell Agreement

It can be difficult to establish the terms and conditions of a Buy-Sell agreement because it is hard to predict what will happen in a company’s future. While it is not easy to assign the actual value, it is crucial to agree on a buy-out price in the beginning of a partnership relationship when the agreement is signed. One of the most useful ways to determine the price is by using the book value of the company’s assets or the past profits of the business. An experienced business attorney can offer advice regarding which measure is best. The agreement should also list the names of the people who have the power to buy out a partner, as well as the circumstances under which these individuals have the right to enter into a buyout agreement.

Filing a Lawsuit Against a Business Partner

Another way to manage the firing of a business partner is filing a lawsuit against them. Depending on the specific situation, a business partner’s inability or failure to do their job could be a matter that can only be resolve in court. It may then become necessary to hire legal help to remove the partner from the company. Some of the most common reasons to file a lawsuit against a partner include breach of contract, breach of fiduciary duty, and conflict of interest. This would mean the partner either did not do their job, competed against the business, or mishandled company funds. The partner who decides to file the lawsuit has the duty of proving the failures of the other partner.

Dissolving a Business After a Partner Dispute

The unfortunate reality is that it is common for businesses to dissolve after a partnership breakup. If it is impossible to fire a partner through either litigation or a buyout, then it may be best to dissolve the business. Ending a company starts a process which is called “winding up.” This process involves the business selling its assets, paying liabilities, and dividing the remaining proceeds among partners. In such a situation, it is best to consult an experienced business attorney. The lawyer can defend the innocent partner and ensure that the problematic partner does not engage in any improper behavior during the dissolution.

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