A partnership is a hopeful and optimistic thing. It represents two (or more) people coming together to try to build something. It’s true in relationships as well as in business. Unfortunately, things don’t always work out the way that people want them to. Business partnerships can fail based on personal factors that are out of your control — illness or death are good examples, but so too are divorce, retirement, or relocation — as well as from an inability of partners to agree on how to manage a business, or even as a result of unethical or dishonest actions. Whatever the reason your business partnership isn’t working, having a well-crafted partnership exit agreement in place is your best way to avoid having to abide by state law that dictates that ending the partnership will also close the business.
Having a business partnership agreement in place – as well as an exit agreement – can head off a lot of problems. When it comes to ending the partnership, an agreement will supersede state law and allow alternatives to closing the business down entirely when the partnership comes to an end. It may allow you to purchase the departing partner’s shares of the business based on pre-existing terms, or to sell the business to a third party. An agreement can also contain a right of first refusal clause that prevents a departing partner from arbitrarily selling their shares to somebody with whom you do not want to do business or can place limitations on the role that a new partner can play.
Whether the end of your business partnership means the end of your business or simply shifts responsibilities and ownership, it is important that you have the support and guidance of an experienced business law firm. You may need the business to be evaluated, and you may need to file forms with the state to indicate the dissolution of the partnership. There will be specific activities that need to be completed: assets that need to be distributed, creditors that need to be paid, and tax ramifications as well. If your partnership’s business had employees you may have labor law obligations to them, and if you are planning on keeping the business or bringing in a new partner you may need to reach out to clients to alert thee to the upcoming changes.
For assistance with all of these activities and more, contact us today to set up a time for us to meet.