How to Deal With Dissolving a Business Partnership

July 1, 2017

12:45 pm

Dissolving a business partnership is often a necessary evil in the world of business. It’s a long and complicated process that can be rife with less than business like emotions. The process is much like that of a divorce, but dissolving a business partnership is often more difficult than a divorce. If you think you’re ready to part ways, here are some different ways you can go about dissolving a business partnership.

Why Dissolve a Business Partnership?

There are many reasons that people choose to dissolve their partnerships in business. Sometimes, people dissolve their partnerships with no hard feelings simply for personal reasons. However, most often, reasons for partnership failure include personality conflict, poor business strategy, or lack of a written partnership agreement.

The best way to avoid the end of a business partnership is to have a business plan that outlines each partner’s responsibilities. If there is no solid plan in place, expectations – whether previously discussed or unspoken—have a high risk of being unmet. Failure of partners to pay their bills, carry out their tasks, or meet other requirements is a common cause of business partnership dissolutions. If these expectations have been clearly laid out and obviously broken, it can be much easier to decide the outcome of a dissolution.

Alternatives to a Partnership Dissolution

Before you go through the long and complicated process of dissolving your business partnership, consider if there is a way to work things out without ending things with your business partner. If you need to change responsibilities and power to fit better with your individual needs and lifestyles, this could be an option. Perhaps one partner is struggling to maintain his or her end of the deal; this partner may be willing to accept a reduction in both responsibility and decision-making power in your business.

Options for a Dissolution

There are many options for dissolving a business partnership. One is simply to buying out your partner. If your partner is no longer willing or able to continue in your business, you could buy out his or her share. Conversely, you could also sell your share to your partner if you want out.
If you do have a partnership agreement and wish to divide up the business, you can split the business much like you would do for a divorce. If you partner is not willing to dissolve the partnership but also has not been keeping his or her end of the business contract, you can apply for a dissolution decree from the court of equity.

Like a divorce, you will need to take stock of your assets and decide how they will be divided. It is always best to hire a disinterested third party to help you determine the worth of the business. Unlike a marital divorce, however, a business is likely to have a significant amount of legal entanglements to work out, such as loans, liabilities, contracts, and business relationships. According to Christopher Griffith, a divorce mediator with SplitSimple.com, dissolving a business partnership can be much more difficult than dissolving a marriage. Generally, the percentage of ownership matches the percentage of loans and liabilities that each partner takes.

It is essential to get a lawyer to help you in these matters, as well as in understanding state requirements for business partnership dissolutions. If you don’t have a partnership agreement, a mediator rather than a lawyer may be helpful in deciding how best to divide up assets.

Once you have decided how to dissolve your business partnership and taken steps in that direction, you need to follow the legal processes. This involves filing a statement of dissolution with your state and notifying your creditors, contractors, clients, and other necessary parties.

Read more about being proactive with your cofounder at TechCo

REMINDER: always check with your legal professional before dissolving a partnership

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As a writer, Alex focuses on the intersection of Education, Technology and Manufacturing. Manufacturing is still decades behind other industries in embracing tech – and education is the cure. His consulting work spans several continents, setting up processes and efficiencies within the manufacturing sector.

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