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What to do when you and your business partner want to part ways

Business arrangements don't last forever. Even if your enterprise has been successful, you and your business partner may decide to part ways for any number of reasons: a career change, retirement, relocation. Maybe the partnership has run its course and it's time for both of you to move on. Maybe you've come to an impasse about your goals and vision for the business. Or maybe one person wants to branch out on their own and pursue new opportunities.

Regardless of the reason, whenever one partner wants out, the situation can be tricky. In many ways, a business partnership is like a marriage. You have spent years or decades working together. You have shared risks and resources. And ending a partnership, like a marriage, can lead to heated disputes.

Avoiding costly court battles

Fortunately, there are many ways to move forward without spending a fortune on stressful legal battles.

Communication is the foundation of a successful outcome. Whether you're thinking of leaving or planning to stay, it's important to be honest about your goals, concerns and expectations. Only by being upfront can you work toward a win-win resolution that meets both of your needs.

Where to start

The first place to start is with your partnership agreement (if you have one). Many agreements outline how to handle one partner's departure. If you had the foresight to agree on an exit strategy ahead of time, you're far less likely to get stuck in doubts and disagreements.

But what if you don't have a partnership agreement - or if its terms aren't clear? You can still work together to reach a fair and reasonable agreement.

What happens to the business itself?

Depending on your situation, you might decide to pursue:

  • Buying out the departing partner's ownership in the business
  • Restructuring into a different type of partnership that allows the departing partner to keep an ownership interest without having any management rights or day-to-day involvement in the business
  • Dissolving the partnership entirely
  • Forming a different type of business entity (which essentially involves dissolving the partnership and reorganizing as an LLC, corporation or other organization)

Whatever path you pursue, an effective separation agreement must address the legal and financial ramifications of the road ahead. A knowledgeable attorney can help you make informed decisions and avoid pitfalls.

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