To deal with a bad business partner, speak to the partner about your concerns. If talking doesn’t work, you may close the doors by dissolving the business, selling your share to the partner or another person, buyout the partner, or suing the partner.
Author: Brad Nakase, Attorney
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For ten years, Elsie and Jacob have been partners in a business venture called Fly Snowbird, a travel agency in Orange County, California. Unfortunately, for the past few years, Jacob has been losing interest in the company. He rarely shows up for scheduled meetings, does not fulfill his responsibilities, and Elsie suspects he may be starting his own company on the side. Elsie is tired of working alongside a bad business partner, and she is ready for a change. But she is not sure how to handle a disappointing partnership. How should she approach Jacob, and what is the result that she wants for the business?
If a business owner is a member of a partnership or long-term business relationship that is not working out as intended, he or she should remember why they got involved in the partnership in the first place. Often, entrepreneurs with a big idea do not feel ready to take on the responsibilities and pressures involved in running a business. Therefore, they are quick to find anyone who is interested in running the company with them, regardless of their personal chemistry or shared values. Choosing the wrong partner is thus the basis of many partnership problems.
If a business owner agrees with any of the following sentiments, then it may be time for he or she to take charge of their business and make necessary changes:
The following are steps that a business owner can follow if he or she is prepared to make serious changes to their business partnership.
A partnership may exist in two forms: either as a partnership or as a corporation. In any case, it will be a legal entity that binds both partners. It is important that an attorney review all company documents so that the owner knows where he or she stands from a legal point of view. This way, an owner knows what his or her limits are in the planning process.
If there is a written agreement that concerns roles and responsibilities for each partner, then the owner should review this document and analyze whether it is still appropriate or needs updating.
If a partner is unhappy with the state of the business or where it is headed, then this would be the time to take action. That said, one should think carefully about what he or she is trying to achieve prior to making any rash decisions. A partner should think about potential outcomes for various scenarios in order to finalize a plan.
The best thing a business owner can do is to create a plan for the business as he or she wishes to see it. The owner should then present this plan to their partner. If the plan is to dissolve the business, then the owner should present the reasons he or she wants to leave, as well as what they plan to do in the future. Perhaps the owner is not leaving the business, but delving into something else.
It may be helpful to schedule a time to talk with one’s partner in a different venue, such as a coffee shop or café. The owner should be prepared to listen to whatever response the partner has. Their reaction may be grateful, or it may be extremely hostile. The partner may need time to consider the consequences of the owner’s proposal. It can be difficult for people to make changes unless those changes are essential to their wellbeing or protection. In the end, a business owner should not back down from what they want, but should be prepared to compromise if satisfied with the terms offered.
If a partner is looking to blame a business owner for the business’ problems, then this discussion may bring up this conversation. It is important to not let this turn into a squabble over blame. The goal is for the owner to present his plan for the business’ future and how to make it happen. It may be appropriate to detail how one sees the partner’s role changing or staying the same. It is then up to the partner to decide if they agree with the plan or not.
If the partners cannot come to an agreement, or if the partner is not willing to keep his part of the bargain, then there may be a need for a change in business status. It may be that the best option is to close the business, sell it, sell one’s share to the other partner, or buy out the partner. The point is that the owner should be able to move forward with his or her plan or goals. It is not easy to give up on something that one has worked hard on for many years. But at some point, one has to make the proactive decision to not be a victim and to strive for a better future.
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