Fighting with your Business Partner? When and How to Cut the CordNov 9 2021
Most business partnerships start out smoothly: you are on the same page, with shared goals and values. Or so you thought.
Down the road, maybe your business partner has started making decisions without you, is spending money on things you don’t agree on, or has stopped contributing to the business. If you’ve raised your concerns and the issues continue, it is likely that the tension between you is growing. You both know something has got to give. Sound like a bad break-up? That’s because the end of a business partnership can often feel like a messy divorce. Here are some considerations to make to end things with your business partner while salvaging your business.
What Type of Relationship you ARE in
In order to decide how to get out of a business relationship, you first need to define what that relationship was. Is your business incorporated? Is there a shareholder’s agreement? Or perhaps you never formalized it into writing. You may have been acting as a partnership. If you didn’t have a written agreement, it may not be clear cut. Your options will differ depending on what type of relationship you were in.
What you Can Do
If have a written agreement, review the document and familiarize yourself with your options. You might have a shot-gun buy-out clause or there may be other provisions that explain the steps for terminating your business relationship. You also need to consider what legal obligations you might have. If you’re planning to dissolve the entire business you need to consider any leases, employees, re-payment of business loans, or other obligations that you may need to factor in.
What you Want
The next step is to figure out what it is you want. It helps to consider all of the possible outcomes for yourself and your business. Do you want to dissolve the business? Buy-out your partner? Be bought-out? Remain partners but agree on a different arrangement and formalize it in writing? Write down what all of the possible options are (as you see them) and then rank them in order of most acceptable to least acceptable. You need to be clear on what you want before you approach your partner to end it.
What it IS Worth
If you’re planning any proposal that involves a buy-out, you need to get clear on what your business is worth. What is your annual revenue? What are your projections for the next few years? What debts does the company have? Are there any shareholder loans to consider? Be realistic.
Have that Hard Conversation
Even though it is going to be uncomfortable, you need to have the hard conversation. It helps to have this conversation in a neutral location. Try going for coffee, or take the conversation outside for a walk. If your relationship is at the point where you can’t even be in the same room together, you may need to call for back-up. Retaining counsel who can table various solutions and negotiate a buy-out is often the most effective way to wrap-up a business relationship.
Put it in Writing
Once you’ve reached an agreement with your partner get it in writing. Set out the details of how you will dissolve the partnership. Detail the terms and conditions, such as the amount, the payment date(s), the rights each party holds, and what each party is or is not allowed to do afterwards. For example, you could agree to include a provision limiting competition afterwards for a certain period of time.
If you need help navigating the end of your business relationship, a member of our commercial litigation team is happy to assist. Contact our office at 604.853.0774 to set up a consult.
Thinking about starting a business and want to take preventative steps to avoid the potential for a messy split in the future? We can help with that too. Contact our office at 604.853.0774 to set up a consult with a member of our business law team.