Nobody wants to think about a partnership breaking up – it can significantly disrupt a business and have both financial and emotional impacts as well. Though it is undoubtedly easier to hope that it never happens, it is in every business’s best interest to anticipate and prepare for the eventuality, even as you hope it never comes.
Partner disassociation refers to the formal or informal exit of one partner from a business partnership. Whether it happens voluntarily or involuntarily, it ends the partner’s involvement in the business’s management, operations, or ownership. Depending on the terms of the original partnership agreement, the partner who is leaving may be entitled to a buyout, and it’s possible that the business could also lose revenue if the departing partner was key to client relationships or had specialized skills or a strong presence in the business’s industry. In addition to having to pay legal fees to formalize the disassociation, renegotiate contracts, or handle disputes, the departure can strain the company’s cash flow, destabilize the business, and jeopardize its long-term viability.
Additionally, there can be a real emotional impact to disassociation depending upon the original and ongoing relationship with the other partners in the business, as well as with employees and stakeholders. It is common for a partner’s departure to be stressful and demoralizing, and for some, it can evoke a feeling of betrayal. Any change in management can lead to uncertainty about the company’s future, and this can impact workplace productivity. The more personal the relationship with the departing partner was for all involved, the bigger the emotional impact is likely to be.
In addition to these concerns, the remaining partners need to worry about whether the disassociation will impact the business’s operations. The departure may disrupt workflow or leave a gap in the decision-making process. Those left behind may be unclear as to who will assume the departing partner’s role and responsibilities. If these questions aren’t resolved quickly, the void can leave an impression of instability both internally and externally.
The best way to avoid significant disruption caused by partner disassociation is to have a clear process outlined in the original partnership agreement that details all terms, including those surrounding dispute resolution, valuation, and organizational structure, including succession planning for every partner. Beyond contractual clarity, continuing communication can help diffuse potential issues, and so can diversifying responsibilities so that no one individual is relied upon for critical operational functions. Financial reserves should be established to cover the costs of buyouts and legal fees.
It can be hard to prepare for something you hope doesn’t happen, but it’s the wise thing to do. For assistance in protecting your business from partner disassociation disasters, contact us today.
