How To Get Rid Of A Business Partner

How To Get Rid Of A Business PartnerWhether you co-own a partnership, corporation, or limited liability company, there often comes a time when you want to get rid of a business partner for personal and/or financial reasons.*

So, how do you do it?

Business Entity Legal Documents

The first thing to do is look at your company’s formation and operational legal paperwork. Depending upon the type of entity you have, this can include a partnership agreement, corporate bylaws and shareholders agreement, LLC operating agreement, etc.

Related Article: How To Protect Your Startup With An Equity Vesting Agreement

These documents often have provisions that trigger the buyout of a co-owner upon the occurrence of specific events and contain detailed steps to follow to complete the transaction so that you can part ways.

Make An Offer

If your company doesn’t have a legal document that covers this issue, you can always make an offer to buy out your partner’s interest.

Often it’s difficult to agree upon a reasonable price to pay for equity in a privately held business. Naturally a controlling share of the equity is worth more than a minority share. But it’s negotiable.

Related Article: Protecting Yourself From Internet Business Partners

One way to solve it is for each partner to separately put bids in sealed envelopes to buy out the other’s interest. The envelopes are opened simultaneously by the recipients of the bids and the successful bidder is the one who offers to pay the highest dollar amount per unit of equity (e.g. corporate share) being purchased.

If you don’t trust your partner to honor an informal bidding process, you can have an experienced business contracts lawyer draft a settlement agreement to be signed and even help with handling the bidding process and subsequent sale to the highest bidder.

Lawsuit To Get Rid Of A Business Partner

Suing your business partner to get rid of him should be a last resort…and only if there are legal grounds for doing so. In addition to being costly in time and money, litigation as a means to dump a partner often drives an otherwise thriving business into bankruptcy. In short, the benefits are rarely worth the costs incurred.

If neither of you wants to sell, and there’s no contractual or other legal basis for forcing a sale, it’s probably time to get a professional mediator to help you resolve your differences.

* The term “partner” is used generically in this article to mean the co-owner of your business. As a practical matter, if you have a corporation it is referring to “shareholder” or to a “member” if you have a limited liability company.

Author Mike Young, Esq.

Internet Lawyer Mike Young provides contracts and other efficient legal solutions to business owners and C-level executives of privately held companies. To get legal advice from Mike, click here to set up your phone consultation with him.

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