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

Email  |  Call (888) 600-8654

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:

  1. 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.
  1. 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.
  1. 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.

Please tell us your story:

2 + 1 = ?

See all blogs: Business | Corporate | Employment

What is profit formula and how to calculate profit formula?

A business profit is revenue minus expenses. The profit formula in accounting calculates the net gains or losses incurred by the business for a period by subtracting the total expenses from the total income: Total Income – Total Expenses - Profit

What is invoice reconciliation?

Invoice reconciliation is the process of matching bank statements to incoming and outgoing invoices. The purpose of invoice reconciliation is to confirm that the data entry is correctly matched with every invoice.

What Makes a Verbal Contract Valid

A verbal contract is valid when contractual elements are satisfied, such as evidence of an offer, acceptance of the offer, and consideration which is an exchange of value between the parties.

Marketing Transport Company

The easiest way of growing your list of clients is to schedule a meeting with businesses that do a lot of shipping and introduce your transportation company. Then, engage an internet presence to market your transportation business.

What Can You Do with a Toxic Business Partner?

A bad partnership could lead to profit loss and toxic company culture. The first way of dealing with a toxic business partner is to schedule a meeting to discuss your concerns calmly.

Disruptive Business Model

Disruptive business models are disruptive innovations that bring new business ideas or technology to existing markets. A disruptive business does not fit the profile of a standard business model. Amazon is considered as one of the world's most disruptive companies.

How to Get a Business Loan with Bad Credit

For small business owners with bad credit, the easiest place to get a business loan is with the SBA. Although not easy, entrepreneurs with bad credit can get a small business loan.

How to Get a Small Business Grant

You can get a small business grant from the Small Business Administration. Also, check your local government for small business stimulus grants.

Pros and Cons of Etsy

Etsy Pro: Your products are given a large audience, and you easily sell your merchandise. Etsy Cons: You can only sell handmade or vintage merchandise, and there are many competitors.

What is a Breach of Contract in California?

A breach of contract in California arose when a party to a contract failed to achieve a legal duty the contract created. When a party to a contract fails to fulfill the terms of a binding contract, they are liable for damages for breaching the contract.

Business Equipment Leasing Pros and Cons

One advantage of equipment leasing is that you don’t need to come up with all the cash to buy the equipment. One disadvantage of equipment leasing is higher overall costs than outright purchasing the equipment.

LLC vs DBA

The main difference between an LLC and a DBA is that an LLC is a business entity, and a DBA is a registered fictitious business name. Sole proprietors, general partnerships, and LLC can register for a DBA.

What is an LLC and how does it work

An LLC is a business entity that protects the owners with limited liability protection. An LLC also offers pass-through taxation, which means the company’s profits and losses pass through to the owner’s personal tax level.

What Is a Disregarded Entity?

A “disregarded entity” refers to an entity with one owner and not organized as an entity such as a corporation, LLC, or partnership. For federal tax purposes, the disregarded entity and the owner, who is a natural person, are not treated separate.

California Breach of Fiduciary Duty

A fiduciary is a professional person who owes a legal and ethical responsibility to another person. Examples of people with fiduciary duties are lawyers, financial advisors, corporate officers, corporate directors, etc. A breach of fiduciary duty occurs when the professional person fails to do what was legally and ethically required of them.

List of 12 Biggest Business Startup Costs

It is a good idea for every entrepreneur to consider the costs associated with starting their business. Financing is stressful, but estimating startup costs goes a long way to ensuring a business succeeds.

Is it legal to sell homemade food in California?

California is one of the only states to allow individuals to sell homemade meals, including meals that contain meat. So long as you have California required permits and licenses, it is legal to sell homemade food in California.

10 Tips on How To Start A Food Truck Business

Running a food truck business is an exciting and trendy opportunity for any entrepreneur with a passion for food. If a business owner chooses the right financing options and follows the above tips, then he or she has every chance of success.

What is a demand letter?

A demand letter is a letter that is commonly written by a lawyer on behalf of a client setting forth facts supporting a demand for money. A demand letter is usually the first step in resolving a dispute between two opposing parties.

What is working capital cycles?

In business, a Working Capital Cycle is the period that a company waits to receive payment to create available cash. A long cycle means tying up capital for a longer time without earning a return. Short cycles allow your business to free up cash faster.

What Happens When Business Partners Disagree?

Before going nuclear, when business partners disagree, the partners should talk about how to move forward. If talking fails, the partners may discuss a buy-out. However, if there is wrongdoing by one business partner, a lawsuit may be an option.

Bank Statement Business Loans

A business bank statement loan lender relies only on the company’s bank statements to qualify the borrower.

How to Prove a Verbal Contract

To prove a verbal contract is by getting witnesses to testify that the agreement was made. Also, proving a contract existed can be supported by documents such as receipts, invoices, delivery, statements, text messages, and emails.

What are business performance metrics, and why it is important?

Business performance metrics is a quantifiable measured value that shows the company’s progress and growth. Business metrics track the business progress and performance. A quantifiable measurement may include customers, revenue, and profits.

Is Sabotaging a Business Illegal?

Yes, sabotaging a business is illegal regardless of who is saboteur, e.g., business partner, competitor, family member, or customer.

See all blog: Business | Corporate | Employment

© Copyright | Nakase Law Firm (2019)