How To Fire A Business Partner

The decision to start a business with a partner is undoubtedly critical to the success of the business. Few businesses find resounding success with a single owner, but the selection of a bad business partner can be as dangerous as the selection of a good partner could be beneficial. Sometimes, handling the business responsibilities may lead to squabbles among the business partners, if the situation does not improve, it may become necessary to fire a business partner. Now, how to terminate a business partnership? Whether your business is structured as a corporation, partnership or LLC, it is important to know how to terminate a business partner if you want to prevent any dispute from becoming a death sentence in the future.

If you are smart enough to set up your own business, then you should also know how to sack a business partner if the need arises. First, you should have a written agreement that would address partnership disputes and the conditions one should follow in case such disputes arise. Also, it is recommended to have a separate buyout agreement, signed by each of the partners. These agreements outline your recourse if disputes arise, and if the need arises, you should know how to fire a partner in business. Last, you should have a properly implemented exit strategy that trigger in case of irreconcileable partnership disputes.

Many people consider a partnership a risky business endeavor. The reason is, many partners fail to meet their responsibilities and obligations in the business. These acts of negligence may result in disputes among the partners, even to a loss of money. In most cases, the non-performing partner can be ousted from the company through litigation, but this can be expensive. Another way to get rid of your partner is by negotiating a buyout. It is important to understand the rules associated with removing a business partner to protect your business interests.

Know your Business

Depending on the type of business you're operating, there will be vastly different ways to terminate the relationship. A partnership can be terminated as easily as one partner telling another, "It's over!" In corporations, however, you may need to litigate in order to kick a partner out. The relationships between partners is covered by business laws, by default. Some of these rules can be amended or even removed in a partnership agreement, but in the cases where there is not a signed agreement (which is most of them) the default rules will apply.

Buyout Agreement

Before you ask, “how do I get rid of my business partner," you might want to address that issue before you ever get into business. Prior to opening, the partners should create a properly written Buy-Sell Agreement. The Buy-Sell Agreement acts as a "business prenup," laying out the expectations for how the breakup will be handled long before the relationship ever legally starts. Basically, a Buy-Sell Agreement is a contract that clearly states the terms for buying out a business partner and securing his ownership interest. The appropriate price for buying out the partner is clearly mentioned in the agreement.

Terms of the Buy-Sell Agreement

Stating the terms and conditions in the Buy-Sell Agreement can be a big challenge because it is hard to predict the future of the business. Although it is difficult to determine the actual value, it is important to agree upon a buy-out price in the beginning when the agreement is signed. One of the most convenient ways to determine the price is by basing it on the book value of the company’s assets or on the past profits incurred in the business. An reputable business attorney will give you a good idea about which measure might be best. The agreement should also include the names of the individuals who would possess the authority to buy out a partner and the circumstances under which they have the right to enter into a buyout agreement.

Lawsuit Filing

If you never executed a Buy-Sell Agreement, and you're still wondering, “how do I get rid of my business partner,” then the best step that you can take is by filing a lawsuit. Depending on the circumstances, your business partner's failure to perform could be a question of fact that can only be resolved by a lawsuit. It then becomes necessary to seek legal help to remove the partner from the business. Some of the common reasons to file a lawsuit against your partner would be breach of contract, conflict of interest, and breach of fiduciary duty. This means that the partner didn't do their job, competed against the company, or mismanaged the company funds. The partner who files the lawsuit bears the responsibility of proving the inefficiency of the other partner.

Dissolving the Business

Unfortunately, the most common result of any business partner breakup is that the business ceases to exist. If you find it impossible to remove the partner through litigation or impossible to buy out the partner’s share, then you may dissolve the business. Dissolving the business begins a process called "winding up," which requires that the business sell off all of its assets, pay all outstanding liabilities, and, if there is anything left over, dividing the proceeds between the partners. In these cases, it is always better to seek the help of an attorney, who can fight the case on your behalf and make sure that the partner does not resort to any unscrupulous activity.

Remember, the partner may not want to leave the business. So your attempt to fire your partner may backfire; the partner might discredit your business, steal money, or damage property, therefore it is best to seek the advice of a lawyer before you fire a partner. We can help, so give us a call at 205.545.7278 or fill out the form on this page.