Legal Insights / Business Law / Steps To Take If Your Business Partner Lets You Down

Steps To Take If Your Business Partner Lets You Down

Jun 27 2017

When two or more individuals decide to embark in business together, they must decide what type of business to register and may ultimately decide to register as a partnership. Having a business partner in a registered partnership is not unlike being married; you both have to work at the relationship and the business to make it succeed, and it will require both personal and financial commitments.

Before you go into business with a partner, or multiple partners, be sure you have a rock-solid partnership agreement should things go south. A partnership agreement details specifics of each partner’s role and the terms that must be abided by to keep the business up and running as well as to keep the partnership a friendly one.

If things do turn negative, however, before going to arbitration or filing a lawsuit, there are some informal steps you may wish to take to try to salvage the business partnership. You can 1) review the agreement and consult with a lawyer to ensure you understand the agreement; 2) document the issues; and 3) discuss the issues with your business partner(s) and create and action plan to see if they are willing to change their behavior.

1. Review the Partnership Agreement
The partnership agreement is the document that binds you and your partner(s). It spells out many things, including duties, assets, exit strategies, compensation and more. If you are unsure of anything in the agreement, you should consult with a business lawyer who will be able to explain issues to you and suggest various legal actions or avenues you may want to consider.

A lawyer will also be able to assist you in creating a plan to try to help solve the problems which have arisen with your partner(s) or may assist you in dissolving the partnership. If you are at the stage where you need to dissolve the partnership and you will be continuing on as a sole proprietor, you will need to register an entirely new business and you may wish to dissolve the original business itself after doing so. Alternatively, you may be able to keep the business, depending on the structure of the partnership and how the partnership agreement was drafted.

2. Document the Issues
After reviewing the partnership agreement, create a list of the issues you are having with your partner(s). Compare them with the partnership agreement to determine whether any of those issues create a valid reason to dissolve the partnership.

Once you’ve compiled your list, you’re better positioned to create a plan to get your business partner(s) to become active in the business again and work at repairing both the business and personal relationships. However, if you suspect that your business partner is siphoning funds or is involved in other illegal activities, you may have to dissolve the partnership without trying to repair the problems.

You may be able to discuss the issues with your partner(s) and come to a solution, salvaging both the relationship and the business. Plan to meet your partner(s) and your lawyer in a setting other than your place of business. If you think that your partner(s) might not be open to your suggestions, you may wish to set up an initial meeting with a business lawyer. Use the lawyer’s conference room or if you feel things would go better in an informal setting, plan a lunch at a quiet restaurant. Be sure to have a checklist so you do not miss anything.

3. Create a Plan of Action
If you are going to make an attempt to rectify any issues with the partnership, you will need to have a plan of action. A document outlining each partner’s role should be drafted and signed off on. It should have an end date. If things have not improved by the selected date or if your partner(s) falls back into old habits, this date is when you will begin the dissolution of the partnership and/or the business or initiate formal arbitration. If arbitration becomes necessary, the arbitrator (a neutral third party), will work to help you and your partner(s) come to a fair agreement and will then create a binding agreement between you and your partner(s) that you will all have to sign. This arbitration agreement will be enforceable in court.

A second plan of action to dissolve the partnership should also be created should arbitration not work or should your partner(s) fall back into their bad business habits. This plan should outline the time frames for liquidating the business or beginning legal proceedings against your partner(s). It should also outline options for starting fresh, registering a new business as a sole proprietor or – if your partnership agreement allows for it – running the current business without the trouble partner.

If arbitrations or discussions don’t solve the issue, then you may be ready to either dissolve the partnership and start a new business or file a lawsuit to force your partner to leave the business. If you have numerous partners and wish to continue operating the existing business with some of them, you may be required to buy out the partner who is causing the issues.

One of the most important aspects of trying to work things out with your partner or dissolving the partnership and/or business is to create and abide by time frames with set dates. You’ll be less likely to let things slide for longer than necessary, since doing so would potentially lead to even more financial woes in addition to those that you may already be experiencing. Keep in mind that the easiest way to ensure a relatively smooth dissolution of a business relationship is to dictate the separation conditions in the partnership agreement itself so that they and their protocols are clearly defined.

Source: Business Know How

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