Pin Me

What Do You Do When Your Business Partner Splits?

written by: •edited by: Michele McDonough•updated: 1/22/2011

In business partnerships, over time, disagreements do surface and may even come to such a stage that the partners do feel the need to separate. Under such a situation, one must know what things must be taken into consideration what to do if their business partner splits.

  • slide 1 of 3

    Handling a Broken Partnership

    Sometimes Partners Do Split Up Business partnerships are formed when two or more people get together because they have similar ideas and aspirations, which they hope to fulfill by conducting business together. It may be the case that one of the partners brings in the money and the other brings in the technical and business knowledge for the enterprise. If the business has been properly set up, there would be an agreement that will be binding on both parties, and most agreements will have clauses linked to dissolving or liquidating the partnership. But then there are a few people who prefer to go on trust and the fact that they have known their business partner for a long time – sometimes they decide they do not need such an agreement.

    Whether you've got a verbal or written partnership agreement (and written is better), what can you do if your business partner splits?

  • slide 2 of 3

    Amicable Settlement

    Sit down with your partner and review the business since its inception, the hopes that you both had for it, and where it seems to be going at present. Refrain from the blame game and see if you can come to a conclusion as to where your dissatisfaction lies. Perhaps your business partner will appreciate this type of disucssion and you can avoid finding out what to do if your business partner splits without notice.

    It could be that one of you has no interest in continuing the partnership due to other preoccupations and would prefer to split-up the business partner relationship. If that is the final decision arrived at after your one-to-one talk, there are certain things that need to be done.

    Decide whether you want to close down the business or just separate your interests in the business from your partner’s interests.

    Make a complete assessment of the present state of the business and all its assets and arrive at some sort of agreement on the splitting of the assets.

    In case you both decide to stay on in the same business, but now as business rivals, you would need to come to an agreement as to how to split the customer base or create a non-compete agreement for the same market area. You can also split the customers according to whoever had been the original contact or continuing contact. This way, your customers will be comfortable with your business and the attention they always received.

    Inform all your clients of the split in your business and of the new companies or entities that will be carrying the business forward.

  • slide 3 of 3

    Buying Out or Selling Out

    Another alternative if your business partners splits or wants to end the relationship is to arrange to buy out your partner or sell out completely to him. This way, the business can continue as before, with just the management structure changing.

    You could also decide to completely sell out the business and split the proceeds as per your original agreement or understanding and walk away from the business altogether.

    You can of course decide to go to court and let a judge decide on the matter. This is an alternative that can be quite demanding in legal costs and may not get you any real benefits, as judges generally prefer to rule on a fifty-fifty allocation of assets if no earlier agreement is in place.

    A court battle could affect your business negatively and take a long time to settle. If you do feel the need of some outside intervention, see if you can agree on a mediator or arbitrator and leave the job to him. This would take less time and cost you much less.

    To keep your partnership interest safe, when you and another person or entity decide to form a partnership, invest in the cost of a business attorney who can draw up the agreements so all parties must follow the agreement to the letter. Finally, if your business partner splits without notice, if you have a written agreement, you may need to hire an attorney to not only help find your partner, but make him responsible for his partnership obligations.

    Image Credit (FreeDigitalPhotos)