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What Happens to My Business If My Partner and I Disagree?

In many ways, business partnerships are like a marriage. There is a courtship phase, the wedding, and then the on-going marital relationship. During the course of the marriage, there will be disagreements and arguments along the way, and the successful marriage will figure out how resolve those issues in order to stay married. Those that do not figure this out will end up separating and/or divorcing.

The best way to know what will happen to your business if you and your partner disagree is to address as many issues as the outset as possible. This is done via a partnership agreement (or if in an LLC in an operating agreement, or if a corporation, in a shareholder agreement). Codifying these agreements ahead of time when each partner is still happy and agreeable with the other is just common sense. It forces the partners to think ahead, anticipate potential problems, and their resolution. Some of the issues you should address are performance expectations, buyout provisions, profit distribution, startup capital, sale of the business, expansion, and adding partners.

However, since you cannot possibly think of every problem that will come up, you should also provide a formula or mechanism for handling a disagreement. This can take many forms. Perhaps you will have an advisory board you can refer the dispute to. Perhaps you have informal business mentor who can assist. Or maybe you will want to agree to some kind of formal mediation or arbitration process to get the matter resolved.

If you already tried the foregoing, and you are still at an impasse, than you have to start thinking about dissolution of the partnership (i.e. a “business divorce”). This could be addressed ahead of time in a partnership agreement in the form of a buyout agreement. If so, you simply follow through and exercise those provisions. Alternatively, if this has not been established ahead of time, then the terms of the buyout will have to be worked out at a time when you and your partner are not on good terms with each other. In either case, you may want to buy out your partner, or you may want your partner to buy you out because that is usually more economically sensible. If that cannot be accomplished, then you may have to resort to the courts by petitioning for a winding up of the business in which the assets and the debts of the business are distributed equitably to the partners.

Are you in a troublesome partnership? Come talk to us. We offer a free consultation for such matters and can offer ideas and solutions tailored to your particular situation.