Ending a Business Partnership

Planning ahead with a written buy-out agreement can save you hassles and money
By Tom Nutile, Principal TN Communications Group You're part of a business partnership and you want to end it. Simple, right? Just divide the assets with your partner or partners and go your merry way, you think. Not so fast. How you end the partnership, and how you determine who gets which assets and who can do business with your current clients, depends on the answers to several key questions:

1. Do you have an informal relationship where you conduct business without any written agreements?
2. Is your business a corporation?
3. Do you have a pre-existing document detailing how you'll divide the business if one partner wants to leave?
4. Do all partners want to end the relationship, or just one?

Ending a partnership that has no written agreement is like divorcing

If you haven't incorporated your partnership and don't have a written agreement with your business partner, your breakup will be treated like a divorce in the courts. One common way things are split is to compensate each partner for what he contributed.
Try:  Helium provides details on ending a business partnership.

Create a buy-sell or buy-out document

Whether you're just starting your business or you've worked with your partners for some time, it always makes sense to write up a buy-sell agreement that spells out how to end a partnership.
Try:  Learn more about buy-and-sell agreements from Smart Money. Learn about buy-out agreements step by step from a Nolo book.

Craft a partnership agreement

Even if your business has been around for years, it makes sense to memorialize the relationship with your partner or partners through a partnership agreement. It can spell out everything from who can sign documents to how to deal with a partner's major illness to how to break up the firm.
Try:  Learn of the importance of a business partnership agreement from Yahoo! Small Business. Get details on how to draft one, plus other source material on partnership agreements, from Suite101 and the book Form a Partnership: The Complete Legal Guide.

Don't try to dissolve a business relationship without a lawyer

Even if the breakup plan espoused by your business associate seems perfect, it makes sense to run it by a lawyer with expertise in ending business partnerships.
Try:  To find a lawyer specializing in business breakups, check out the American Bar Association Lawyer Referral and Information Service, which has links to lawyer referral operations in each state and Canada. Or search for a lawyer by name at Martindale-Hubbell or LegalZoom.

Hire an outside, independent firm to value your business

There may be a dispute between you and your partner over the value of the firm and each partner's share. Consider hiring an outside firm to put a value on your business.
Try:  One firm specializing in valuing businesses is AmeriWest

It's complicated when you want to end the relationship, but your partner doesn't

How you end a relationship when your business partner doesn't depends on several variables, including how your state treats involuntary breakups.
Try:  For more information on involuntary business dissolutions, check out Yahoo! Small Business.

If ending means selling the business, do it the right way

Don't let breakup issues divert you from maximizing the money you get for your business if you have to sell when the partnership ends.
Try:  Learn how to sell a business for all it's worth at BusinessKnowHow.

Husband-wife business partnerships have unique pitfalls

When a husband and wife who are business partners divorce, there can be particularly difficult legal problems for the company.
Try:  Find out about common practices in husband-and-wife businesses, and how they can cause problems when the couple divorces, from Inc magazine.

• Look out for the "Seven C's" , the warning signs that your partnership may be about to end: (1) communications breakdown, (2) competitive, not complementary, interaction, (3) conflict becoming the norm, (4) cumulative money problems, (5) control issues, (6) changing vision and (7) crisis management impaired by personal issues.