One method to get rid of a 50/50 partner is to file a business partnership dissolution in the state your company was formed to end the partnership.
Author: Brad Nakase, Attorney
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Dissolving the partnership is a last resort when business partners are involved in an unresolvable dispute. Options short of business partnership dissolution may include a business attorney assisting with a buy-out or finding a mutually acceptable partnership agreement.
Equal ownership partnerships are unique because, in some cases, one partner could run the business alone. For example, one partner is only there for financial contributions, and the other takes care of all the planning and day-to-day operations.
However, 50/50 partnerships often depend on the talents and skills of each partner. These equal partnerships utilize the combines traits of two or more individuals. Responsibilities and duties are commonly split among partners, making eliminating one partner difficult.
Since 50/50 partners share equal business ownership, they also often share profits and losses. For one partner to remove another partner, they often need to begin by reviewing the partnership or operating agreement. These agreements differ based on the business, industry, and partners’ interest, but typically they include provisions that pertain to removing one partner, such as:
50/50 Partners: Commonly Asked Questions
Equal Business partners who are contemplating a structural change often ask their lawyers two questions:
The answers to these questions often depend on the partners’ signed operating agreement. However, normally business partners can push their partners out based on the following:
Additionally, some partners who did not violate the partnership agreement or engage in illegal conduct can still be forced out. If a court of law rules that the partners should terminate the company, this sometimes allows one partner to force out the other, depending on the circumstances.
When 50/50 business relationships fall apart, partners begin considering dissolution. Sometimes, one partner attempts to push the other out. Other times, partners are unsure if it is legal to force someone out of business, and they wonder what the consequences may be for their careers or future ventures.
When one partner is considering a buyout, dissolution, or another measure, it is vital that they consult their signed partnership agreement for instructions.
For example, Justin and Fred run a wine bar called Bottles on Brand in Los Angeles, California. After a strong but stressful few years of business, the two equal partners’ relationship is downturned. Justin is a textbook narcissist, and he refuses to work hard. On the other hand, Fred spends over 80 hours a week keeping the bar on track.
Fred finally tells Justin that he cannot deal with Justin’s ego and attitude anymore. Fred offers to buy Justin out, but Justin refuses, though he admits that he only works about “ten hours a week, give or take.” Fred tells Justin he is planning to force him out of business immediately.
Fred contacts an attorney, who suggests that Fred examine the partnership agreement that Fred and Justin signed. The partnership agreement clearly states that both partners agree to shared work responsibilities and hours. Since Fred and Justin are committed to working 40 hours per week, Justin violated the partnership agreement.
With the help of his experienced lawyer, Fred can get Justin to agree to a buyout. These days, Fred has new business partners, and Bottles On Brand is one of the top wine bars in LA.
When a company struggles and one partner threatens to force the other out, the best thing to do is look at the operating agreement. Many operating agreements include rules about partner disputes, such as buy-sell agreements and instructions regarding dissolving the company.
Buyout Provisions in Partnership Agreements
Some business partners add a buy-sell provision when forming the business and creating the operating agreement. These provisions usually allow partners to sell their share of business ownership and include rules for how partners can legally buy each other out.
Consulting State or Federal Laws in the Absence of an Agreement
When a business dispute occurs, and the partners didn’t create an operating agreement, business partners should look to state or federal laws for guidance.
If one partner has breached federal or state laws, the court may order the partnership to dissolve, or the court might remove the wrongful partner from the business.
In some cases, the court may order that the partners dissolve the business regardless of whether someone did something illegal. They have rights if a partner does not break federal or state laws but forces them out of the partnership. However, the removed business partner may still have access to the company’s books and records, so they must contact an attorney.
Buyout Agreements: Pay Attention to Price and Structure
When business partners clash, it is sometimes difficult for them to agree on anything. The partners should contact an attorney when they cannot agree on the price of a buyout. An experienced attorney can negotiate on the partner’s behalf.
Business partners in dispute also often disagree about the structure of the deal. For example, if one partner buys out the other using company profits, this can severely deplete the company’s funds. In some cases, the company does not have reserve funds, and the partner conducting the buyout must figure out a way to obtain the money.
Since buyout agreements can become contentious, it is vital to have an attorney go over the agreement before the partners finalize it. Buy-sell agreements usually involve debate before both parties are satisfied.
When it is clear that one partner wants to terminate the partnership, there are several available options. The partner’s choice depends on their preferred process and expected outcome. Please contact our business dispute attorneys in California to assist your company.
When an individual tells their partner that the working relationship is “over,” they have technically “ended” the partnership. However, dissolving a partnership is a serious action with multiple legal consequences, so neither partner should rely on a verbal statement to terminate the business. Additionally, sometimes one partner becomes stubborn, controlling, or nervous and purposefully slows down the process.
Business partners should follow specific procedures when removing a partner from the company. While all situations are unique, here are a few suggestions for beginning the process of getting rid of a business partner.
When work situations grow complicated, good communication is essential. The partners should try to speak candidly and state their intentions. Partners should also bring a set of questions to the meeting and prepare to answer their partner’s questions.
For example, partners might ask:
Closing company accounts is just the first step. Partners should also make sure that their creditors know the business is dissolving. Next, partners should close business bank accounts and credit accounts and follow the partnership agreement rules regarding asset distribution. Also, do not forget about suppliers, and ensure that the partners pay off the company’s debts and loans.
No partnership shuts down in the same way. Sometimes one partner is left alone, and sometimes the partnership goes from five partners down to two. The way the business distributes assets is based on the structure of the partnership and the founding document.
Since buy-sell agreements can easily grow complex, we suggest contacting an attorney to ensure all accounts are terminated and all company assets are collected and sent out.
Not all business partners will need to consider these rules, but the steps outlined above should help remove a business partner and dissolve a partnership properly.
Sometimes one business partner plans to leave the company, but their partner refuses to buy their shares. When this occurs, it is difficult for partners to figure out what to do next.
When one business partner pushes the other to sell their shares, this also creates difficulties. Many company partners wonder: can they force their partners out?
The answer to this question depends on the terms of the partnership agreement. These founding documents outline the partners’ duties as well as their percentages of profit distribution.
Many operating agreements contain buy-sell provisions that detail how business partners must handle these delicate situations. Typically, these provisions give the partner a choice regarding whether or not to sell their shares.
Sometimes, the agreement provides specific requirements that partners must meet to buy each other out.
The best thing to do in these varied buyout cases is to:
Some partnership agreements allow majority owners to terminate minority owners. However, majority owners of a company are not allowed to fire minority owners without backing a specific agreement provision. Likewise, majority owners cannot force minority owners to sell without support from an operating or partnership agreement.
For example, Henry is a minority owner employed by a rug cleaning business. The majority owner of the business, Jessica, can terminate Henry’s employment. This condition could cause Henry to leave the business since he does not have job security.
However, some legal protections do exist for minority owners when it comes to abusive majority owners. Therefore, Henry’s job might be protected in this case.
Henry’s best thing to do is contact a knowledgeable corporate attorney who can help him identify his rights.
When Can I Terminate my 50/50 partnership?
If the business partnership is not working out, company partners should know that they can terminate the partnership whenever they prefer. However, there are many financial and legal obligations and issues to consider before finalizing the dissolution.
How do I Get Rid of a 50/50 Partner?
Business partners can remove their fellow partners through a partnership dissolution agreement. This agreement should be based on careful planning and consultation with a licensed attorney.
How Can I Terminate my Partnership?
The business partners can terminate the company when they formally state that the partnership is over and file for dissolution in California. The conditions and requirements for dissolving a partnership vary from state to state, so check in with the company’s specific operation state.
Our San Diego business attorney represents to business partners with varied needs and backgrounds. We are here for you, whether you are dealing with a stressful business dispute or need advice regarding getting rid of an equal partner.
Our legal team understands that no company partnership is perfect and that business disputes come in all shapes and sizes. In our first meeting, we will talk through the details of your case and concerns, then strategize how to best fix the problem.
Under certain conditions, business partners can force other partners out of the partnership; these actions must be justified and legal. If you are unsure how to get rid of a 50/50 partner, contact attorney Brad Nakase for a free consultation today. Removing a partner from a partnership can be challenging, but our legal team will make it much easier.
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