New business partnerships start with the best of intentions. The partners are excited by the new endeavor’s potential and likely made serious commitments to help the company live up to its potential. Part of the process is creating a business plan, which includes a job description, ownership details, adding partners, buying out departing partners, and dissolving the company if the venture does not work out.
Ideally, all invested parties work hard, and the business is successful. The partners reap the financial and professional benefits of that success, and everyone is happy. However, over time it may come to pass that partners wish to drop out or even be forced out against their will.
Not honoring the plan
There are arrangements in the business plan like a buy/sell agreement, or there may be precise terms for how a partner can assume control, sell or dissolve the business. The process of altering the partnership terms will involve a business valuation based on resources and contributions by the existing partner. The partner leaving the business is then bought out. Another option would be to dissolve the business if they end the partnership and decide to start a new business. This approach enables the partnership to make a clean break, settle all debts and remove any liability to the partners for future endeavors. These are all valid approaches.
Breaching the partnership
Sometimes, one partner may choose not to follow the plan or honor an agreement. Examples of this include:
- One partner not consulting with the other partners before dissolving the company
- A remaining partner attempting to push out another partner without dissolving the company
- A remaining partner agreeing to dissolve the company and then failing to follow through with their promise
Filing a lawsuit
As an act of good faith, the partner can ask the breaching partner to cure the breach, which signals that you plan to file a lawsuit if they do not address the matter. Those who violate a partnership agreement governing the business and ownership may be penalized by the courts for a breach of contract. Depending upon the circumstances of the case, the courts may also award damages for unfairly removing the other partner or depriving them of ownership interest or income related to the company.
Those with questions should contact an attorney who handles business litigation. They can review the business plan and related agreements to determine the best course of legal action, whether it is litigation or another solution.