How to remove a partner from a partnership?

There are several methods of removing a partner from a partnership: 1) buy out the partner, 2) refer to the partnership agreement for removing a partner, and 3) sue the partner.

Brad Nakase, Attorney

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When a business partner decides to depart from his or her role as a partner in a company, they may wonder how to end their association with the business. The association, in this case, is the individual’s name being attached to the company. A partner’s options to achieve this will depend on the type of business he or she was a part of. However, these paths may include changing the business name or dissolving the business entirely.

Removing a Name from a Limited Liability Company

If an individual who is departing from their business wishes to have their name removed from a limited liability company (LLC), then he or she will have to consult the LLC’s operating agreement. The operating agreement, formed at the beginning of the partnership, details how a partner will be able to remove his or her name from the business in the event of an exit. For example, some limited liability companies allow their members to exit only if all other members also agree. Other LLCs are more lenient, allowing their members to leave for any reason and without requiring approval. If an LLC’s operating agreement does not address the subject of removing a name, or if there is no operating agreement at all, then the relevant state’s default LLC regulations will be used in its place. The majority of states address member departure in their default provisions. Certain states make it necessary to officially file the withdrawal.

Removing a Name from a Partnership

If an individual wishes to remove his or her name from a partnership, they have three potential options to pursue:

The partner can pursue dissolving the business. If the company’s operating agreement does not have any provisions to the contrary, dissolution will be the only name-removal option. The individual and his or her other partners will need to dissolve the business and re-register it. This time, the departing individual’s name will not be attached to the business. Clearly, this is a hassle for all involved and should be avoided if possible.

The partner may also pursue changing the business’ name. If the company’s operating agreement allows for a partnership to continue running after one of the partners exits, then the business name may be changed to reflect the partnership alteration. That said, it will still be necessary to inform federal, state, and local authorities of the change in ownership. Selecting a new name may be a simple process. It may simply involve removing the departing partner’s name from the business. However, it is important to ensure the new name is not already in use by another business within the state.

A company with an exiting partner may also use a doing business as (DBA) name. If there is no alternative name available for use, then a DBA may be a good option. Similarly, if the remaining partners simply do not wish to change the name entirely, then a DBA may be suitable. To use a DBA name, a company must file this name change with the county clerk so that it can legally use the name in the county. The fee for filing a DBA can range from $10 to $100.

Removing a Name from a DBA Partnership

If an individual is a member of a DBA partnership and he or she would like to remove their name from the business, he or she should follow the procedures listed in the partnership’s operating agreement. If the company’s operating agreement does not address this particular issue, then he or she will have to review the state’s requirements for taking away a DBA status. Some states do not have any requirements for dissolution, while other states do. Depending on the state, an exiting partner may have to take certain steps to separate his or her name from the DBA partnership. These steps may include the following:

Notify the IRS to have the EIN account associated with the DBA closed.
Have the DBA name unregistered with the relevant state (DBAs are usually registered with the county clerk, but sometimes with the Secretary of State).
Remove his or her name from the business bank accounts and remove the partner’s access to any of the company’s bank accounts.
Notify all business partners and vendors in writing that the partner is no longer a part of the business and that the partner is not allowed to make transactions in the company’s name. Additionally, he or she is no longer liable for the business.

The last point is very important. This is because sometimes, when a partner wants to leave a business, the remaining partner takes the decision badly and decides to get revenge. Before any official notice of withdrawal is made, he or she may buy things in the partner’s name so that the departing partner is legally liable for these items. Believe it or not, there have been many lawsuits related to partners neglecting this step of the process.

Blog: Business | Corporate | Employment Law

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