Breaking Up with a Business Partner: The Right Way and the Wrong Way

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Building a successful business with a partner can be an immensely satisfying and gratifying professional experience. But what happens when one of you decides that it’s time to split and go separate ways? Maybe there are signs that your partner isn’t as enthusiastic anymore. Perhaps you feel like you’re doing the lion’s share of the work. Or maybe you want to retire.

For the good of the company you’ve built and your employees and brand, it’s best to ensure your split is amicable. But how do you break up a partnership gracefully in Tennessee? In this article, we’ll discuss things you should do and things you shouldn’t.

Have an Exit Strategy

It’s always best to have an exit strategy before you discuss the actual break. Consider whether you want to continue your business involvement or if you want to hand it over to your partner. Some options might include:

  • Buy your partner out;
  • Sell your stake to your partner;
  • Sell your state to another individual;
  • Merge with another business; or
  • Offer royalties.

Be sure you know what you want from the break before approaching your business partner and negotiating an agreement.

1. Make the Break Quick and Decisively

Don’t drag out the decision and the details. Once you decide to break up the partnership, it’s best for your business and your relationship if you make the break swiftly. So, set a date when the two of you will officially part business ways and stick to it.

2. Discuss Future Plans

If you’ll be moving on to another business or partnership, discuss it with your partner before you go. You want to be sure that you won’t run into any legal conflicts. You also want to be as transparent as you reasonably can to avoid any personal conflicts or hurt feelings.

3. Discuss Your Plans with an Attorney

Before you discuss the break with your partner, it’s best to review your plans with an attorney. An attorney can look at your formal business documents and any agreements signed by you and your partner and advise you of any potential legal conflicts.

If you included an exit strategy in your partnership documents, your attorney can review them with you and advise you on how to proceed. If you signed a non-compete agreement or any agreements regarding ownership of intellectual property, you should discuss these with an attorney as well.

4. Say Thanks and Be Reasonable

Thank your business partner for everything they brought to the business and your relationship. Even if you’re leaving because you no longer have a good working relationship, don’t adopt a scorched earth strategy. Keep everything as amicable as possible. If you are fair and reasonable, your business partner is likely to respond in kind.

5. Protect Your Assets

Until you agree to the split, freeze your accounts and any credit cards to the extent possible. If things go sideways, you want to ensure that you won’t be the victim of sabotage or even just bad decisions from your partner.

6. Return Company Assets

To avoid legal liability, make sure you return any company property, technology, datasets, intellectual property, or confidential company information.

7. Call in the Experts

Don’t try to negotiate the terms and any separation agreement yourself. Bringing in a neutral third party such as an attorney or CPA is probably the best way to value your business and its assets. Additionally, having a third party assist with the transaction will add a buffer between the parties if there are personal or emotional issues.

The bottom line is that if both of you agree on experts you trust, you’ll both feel more confident about the division of assets or the selling or stock price if one of you will buy the other out. At this point, you’ll also want to consult an attorney to ensure that you cover all of your legal bases, including any tax issues.

How to Protect Yourself in Future Partnerships

If you decide to enter another business partnership in the future, there are steps you can take to protect yourself before you jump in:

  • Have a Tennessee business lawyer draft your partnership agreement;
  • Hire a certified public accountant (CPA) to work with the attorney in structuring the new business and keeping the company books;
  • Include how business dissolution will happen in your partnership agreement;
  • Decide whether the partners should sign intellectual property, non-compete, or non-solicit agreements;
  • Record and keep minutes for all business meetings;
  • Ensure that each partner understands their fiduciary responsibilities to the business; and
  • Create a written agreement spelling out how the business will compensate partners and how you will divide the assets.

Final Word

If you’re considering a business break-up or getting ready to enter a new joint venture, give us a call. We can advise you on the best way to proceed, advise you on business partnerships, and help protect your business assets.

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