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How To Replace A Business Partner

how to replace a business partnerIf you co-own a business but things aren’t working out with your business partner, that usually means one of you has to go if the company is going to survive. In other words, either you or the business partner gets bought out.

Who Is A Business Partner?

Now before discussing this issue in detail, it’s important to note that “business partner” in this article generically means another equity owner. In other words, it’s a shorthand way of referring to partners in partnerships, LLC members, corporate stockholders, etc.

Existing Roadmap For Getting Rid Of A Partner

If your business’ legal documents were set up correctly, there will be a procedure already agreed to in writing by the equity owners (e.g. an LLC operating agreement) that provides for a business partner leaving. Typically, this type of written agreement will empower the company to buy out the departing partner. And if the company does not, then the remaining equity owners will have the option to buy out the partner instead.

New Agreement For Exiting

But what if there’s nothing in writing to govern the sale? Or both of you want to stay? You can reach a new buy-sell agreement on how to decide who stays and who goes.

For example, a popular method is a Texas shootout. Both you and the co-owner each bring to the table sealed envelopes with your offer to buy out the other person’s equity. When the envelopes are opened, the one who has made the highest offer buys out the other.

What Not To Do To Your Business Partner

What shouldn’t you do when getting rid of a partner?

  • Never dilute the partner’s equity by bringing in other equity owners without the partner’s consent.
  • Don’t stop paying the partner his share of the profits in the hope that he’ll go away.
  • Avoid breaching your fiduciary duty. For example, don’t funnel business opportunities elsewhere where you can profit while stiffing the partner and competing against the company in the process.

Communication Is Key

  • You can agree to disagree.
  • You can agree that it’s time for someone to leave the company.
  • And you can agree on a method for making that happen.

Because silence isn’t golden when a business relationship sours. It’s a recipe for corporate bankruptcy and lawsuits between the partners that could have been avoided.

An experienced business lawyer can help you walk through the process of getting rid of a business partner. Don’t just wing it and hope for the best.

Mike Young, Esq.

Author Mike Young, Esq.

Mike Young has been practicing business and technology law since 1994 and is an angel investor in startups. He's been an entrepreneur since 1988. To get legal help from Attorney Young, click here now or call 214-546-4247 to schedule a phone consultation.

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