Leaving a Limited Company Partnership
Leaving a limited company partnership requires certain steps to make sure the process is done legally, helping you avoid lawsuits and other legal issues.3 min read
Leaving a limited company partnership requires the completion of certain steps to make sure the process is done legally, helping you avoid lawsuits and other legal issues.
How to Leave a Partnership
A partnership is a type of business entity in which at least two individuals contribute to the company and share its ownership. If one of the partners wishes to exit the business, the first step is preparing to leave. Part of the preparation should include locating and reviewing the partnership agreement that was signed when the business was formed. This agreement outlines the duties and powers of each partner, as well as how partners can withdraw from the business.
When reviewing the partnership agreement, look for a clause that talks about buying and selling. This usually includes the stipulations around one partner's exit from the partnership. In this portion of the agreement, you might find the price the partnership is willing to pay in order to buy out the shares owned by the exiting partner, as well as who is allowed to purchase those shares. This section may also talk about the approved situations that will trigger the buyout process.
If you can't find your copy of the agreement, make sure to request a copy from the partnership records custodian. The next step is assessing the current business state. You should take this step before discussing your plan to exit with the other partners. It's important to know what you are responsible for, such as:
- Other personal or professional agreements
The next step is removing your name from any business documents, including those that obligate you to perform certain tasks. You must make sure your name is no longer on any documents or contracts that hold you personally responsible for anything relating to the partnership. If you don't take this important step, you could still be held personally liable for business debts or other obligations, even after you have left the partnership.
If the other partners don't want to allow you to remove your name from these documents and release your personal liability, you may want to hire an experienced attorney who can assist in the negotiations between you and the other partners. A business law attorney will have a firm understanding of the limits of your partnership agreement, as well as the state laws about exiting a partnership. This knowledge will help you remove yourself from the business as cleanly as possible.
If your partnership has hired or retained an attorney, it's best not to use this individual. When an attorney has been hired by the partnership, their duty of loyalty will be to the business, not to you as an individual partner. Additionally, if any issues or conflict come up between the other partners and you during the exit proceedings, you'll need to have your own legal counsel to back you up and handle any legal issues.
After you have agreed to certain terms with the other partners regarding your exit from the business, you will need to put these terms in writing, called a separation agreement. Make sure your agreement includes several critical components:
- How assets will be split and disposed
- The right to audit the financial records of the partnership, which is especially important if your exit terms include being paid over a specified amount of time
- Method of payment and price for your shares in the business
- The plan to remove your name from any business obligations
- A materials breach clause
- An interest in security to cover any obligations or debts from which your name can't be removed
- Indemnities for any legal action taken against the business in the future
Valuing the Partnership
When you're planning to leave, it's important to know the value of the partnership. If the other partner(s) choose to dissolve the business upon your exit, they will receive their shares of the liabilities and assets owned by the partnership. The shares will be divided based on each partner's ownership interest in the business.
It might help to hire a third-party business valuation service for an appraisal of the partnership. However, if the other partners are involved in the appraisal process, they may know you're considering an exit from the business. It's best to avoid tipping off the partners to your plan until your decision is firm.
If you need help leaving a limited company partnership, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.