How to Identify, Address and Dissolve a Bad Partnership

By business.com editorial staff,
business.com writer
| Updated
Mar 25, 2020
Image Credit: Whyframe/Shutterstock

Understand the signs of a bad partnership before you take steps to end it.

  • When you start your partnership, you think it is going to last forever, but that does not always happen.
  • Poor communication is usually the first sign of a troubled partnership.
  • You can dissolve a business easily, especially if you do not have much debt.

Risking it all to start a new business is a daunting, sometimes lonely prospect. Entrepreneurs both new and experienced might seek out a business partner to provide security and assistance. However, when you get more than one person working on a new idea, it can be difficult to balance differences in personality, vision and leadership style. Like any other type of relationship, a business partnership is not always built to last.

Whether you're eager to begin a new partnership or looking to end one, read on for helpful tips to navigate all the stages of these complex relationships.

Before you begin a partnership

The desire to have a go-to partner to revel in your business's triumphs and grievances is natural. This honeymoon stage can fade quickly, however, especially if you do not sit down with your partner(s) to hammer out a partnership agreement. According to David Gage, a psychologist by training who founded business mediation firm BMC Associates, that issues with partnerships usually arise when the partnerships begins generating profits.

Determining who gets what cut of the profits and how many hours each person is expected to work might feel awkward, but these conversations will save you and your partner time and money down the road. Gage recommends diving into a partnership's "DNA: discussions, negotiations and agreements."

This process should go into the details, both business-related and interpersonal, that will affect your business. "You know that Godfather quote, 'It isn't personal, it's just business'?" Gage said. "I don't buy it. Different personalities, values, expectations – all of these are components that can break your business."

Gage provides a metaphor of two cars heading to the same unfamiliar location. One car has one person, the other has two. With teamwork and open communication, the car with two people will likely arrive before the car with one person navigating the journey alone. However, if the two people in the second car do not communicate or address conflict, they will fall far behind the one-person car, if they make it to their destination at all.

Signs of a bad business partnership

When balancing more than one personality and vision in a business partnership, communication is key.

"If one partner feels things are unfair, they stop communicating," Gage said. "Communication is the first casualty of a partnership gone or going bad." The implications of this can go deep into the business, with operations affected and employees taking sides. This affects retention, and "the best employees are usually the first ones to leave," Gage said.

As in any relationship, there comes a point where the involved parties need to sit down to determine whether their partnership is worth salvaging. At this stage, it is important to bring in a neutral third party to help revisit your partnership agreement. Gage discourages partners from having this person be their accountant, lawyer or any other person with some investment in the business.

Dissolving a partnership

"Partner dissolutions are a lot like divorces in that they're notorious for becoming adversarial," Gage said. Jumping into litigation can cost hundreds of thousands of dollars and hurt a lot of people in the process. "Mediation has the advantage of being private and collaborative, even at the end."

If you decide to dissolve your partnership, a third-party mediator will help partners come together to collaborate one last time. Ultimately, this can save your business and protect your employees.

When you're in a partnership, remember the two-car metaphor. Well-nurtured teamwork will aid your business journey. But without proper care, you'll hit speed bumps and roadblocks, and potentially a dead end. With the right tools and agreements, you'll find you can make your business partnership seamless, even enjoyable.

Partnership dissolution FAQs 

How do you legally dissolve a business partnership?

When you want to dissolve a business partnership, there are a few steps to take. If you have registered in your state as a partnership, all registered owners must take a vote to dissolve it. After that, if your business had created an agreement on how to end it, follow the partnership agreement. If not, follow your state's laws on how to terminate your business. You also must file a dissolution certificate with the state agency where your business is registered. 

How long does it take to dissolve a business partnership?

According to Legal Zoom, it can take up to 90 days before your partnership is fully dissolved. It may depend on how long it takes for the paperwork to process.

What happens when a partnership dissolves?

When you dissolve a partnership, all taxes must be filed and paid. You should contact anyone that owes you money and submit documentation stating when they must pay you. You then pay all debts, but you may need an attorney to assist, especially if the business does not have the money to pay the debts. You may have to negotiate the amount of the debt. Whatever assets are left, the business partners get whatever they own. If there are two of you and you each own 50%, then you split the assets evenly.

Can one partner dissolve an LLC?

It depends on the type of partnership. According to LegalMatch, if the partnership is a general partnership, then the business dissolves if one of the partners no longer can or wants to participate in the partnership. If it is a limited partnership, then the business can continue if the partner wants to leave the business. 

business.com editorial staff
business.com editorial staff
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