How to Get Out of a Business Partnership?
Knowing how to get out of a business partnership depends on your goals in leaving the partnership.3 min read
Updated November 23, 2020:
Knowing how to get out of a business partnership depends on your goals in leaving the partnership. In some cases, you may want to leave the partnership completely, but in other circumstances, you might just want to alter the partnership arrangement.
Introduction to Leaving a Partnership
Entering into a business partnership can be a very good decision. In a partnership, you'll have someone that you can work with toward the success of your business, and you'll also be able to share risk. Unfortunately, partnerships can also result in liability. For instance, if your partner loses a customer or accumulates debt, you can also be held accountable.
Another problem with business partnerships is that personal conflicts can occur very easily for a variety of reasons. It's possible, for instance, that you and your partners will disagree about which direction you should take the business. Disagreements can also occur because one partner hasn't contributed as much to the business as the other or because a partner isn't fulfilling their responsibilities.
Regrettably, a large number of partnerships fail, so one or more partners might want to leave the business. Just because a partnership ends, however, it doesn't mean that the business needs to. It's entirely possible for a partner to leave the relationship and the business to continue on in a new form.
Steps of Leaving a Partnership
If you're no longer satisfied with your partnership, you might assume that you'll either need to stay in the arrangement or end the business completely. Fortunately, this isn't necessarily the case. Before you commit to any course of action, you should consider your different options for exiting your partnership so that you make the right choice.
First, you should go over your partnership agreement with a fine-toothed comb. Try to determine if every partner is upholding their responsibilities as outlined in the document, and see if there is a procedure outlined for a partner leaving the agreement.
Second, you should schedule a meeting with an attorney other than the partnership's attorney. Meeting with your business's attorney would create a conflict of interest and could complicate you leaving the partnership. Have your personal attorney review the partnership agreement and help you develop a strategy for leaving your business.
Third, you should inform your partner of your intention to leave the business. Prepare for the possibility that your partner will take the news badly, especially if they're a friend, and also be aware that they may seek retribution by draining your business's accounts. To protect yourself, there are a few actions you can take:
- Cap your partnership's lines of credit.
- Put a hold on business credit cards.
- Move all cash to an account where immediate withdrawals aren't possible.
Since everyone's ego and financial status is at stake, telling your partner you're leaving the partnership can be extremely difficult. The best way to get ready to reveal the news is to consider three important factors:
- How you can benefit.
- How your partner can benefit.
- If there's a way you both can benefit.
If you want to successfully negotiate your exit, you should be ready to make some concessions to your former partner. Making sure both sides benefit from the end of the partnership can limit the possibility of bad feelings and future legal conflicts.
How you break the news of your exit is almost as important as the exit itself. If you suspect that your partner will react poorly, it may be tempting to inform them over a phone call, email, or text. Going this route is a mistake, and it may cause an even more negative reaction. A face-to-face conversation is going to be tough, but it's your best course of action. Set the meeting in a private location in case things get heated, and make sure you allow enough time to discuss all pertinent issues.
During the meeting, you should tell your partner that they should hire an attorney. Doing so serves two purposes. First, it shows them that you are actually keeping their best interests in mind. Second, if both of you have legal representation, ending the partnership is likely to be much smoother. Your and your partner's attorney should meet to discuss the end of the arrangement. Hopefully, you and your partner will have already negotiated an amicable end to the partnership.
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