Like any other relationship, business partnerships sometimes break up. That might be because of poor communication, financial struggles, or even one partner’s decision to pursue different goals.
So where does that leave you (and any other remaining partners)? That depends on several factors. A partnership dispute lawyer can give you advice related to your specific case, but below are some general guidelines.
If You Have a Two-Person Partnership
If your business partnership only includes two people — yourself and your business partner — the departure of one means the partnership will be dissolved.
If a business partnership attorney worked with you to create an agreement when you began the partnership, that agreement should outline the next steps to take. Most partnership dissolutions go roughly like this:
- You and your partner vote to dissolve the partnership (record this in writing)
- You arrange to pay any debts your partnership currently owes
- You liquidate any property owned by the partnership
- You and your partner split the final profits
- You file your final tax returns and any other required documents as a partnership
If you haven’t dissolved a partnership before, it’s easy to become overwhelmed and leave out critical steps. An experienced attorney can help you and your partner through the process to ensure everything is done according to your partnership agreement.
What if you have no partnership agreement (or have one that doesn’t specify what you do if the partnership dissolves)? In this situation, working with an attorney is even more important.
If you and your partner did not create an agreement, New York state law specifies the steps you need to take to legally and completely dissolve the partnership. Your attorney can explain the laws and make sure your dissolution follows them.
If Your Partnership Has Three or More People
If your partnership will still have two or more partners after one departs, you don’t have to dissolve your partnership when one leaves. Usually, one of three things happens when the partner leaves:
- The remaining partnership buys out the departing partner’s interest
- One of the remaining partners buys out the departing partner’s interest
- Another person buys the departing partner’s interest and joins the partnership
That might sound easy enough, but you may find yourself running into another hurdle — how do you choose a fair price for the departing partner’s share? That calculation typically hinges on three things:
- Book value of the business (the value when you subtract liabilities from assets)
- What the business’s value would be if it were immediately liquidated
- The value of potential future distributions
If you and your business partners have a very thorough partnership agreement, it might outline the exact way you would go about calculating and buying the leaving partner’s share.
However, if you’re like many business owners, you might not have an agreement with detailed provisions in this area. If you don’t, that might leave you vulnerable to litigation — especially if one partner is leaving due to a disagreement or dispute.
If this is your situation, it is wise to work with a partnership dispute lawyer. An experienced attorney may be able to help you safeguard your interest in the business and the partnership as a whole.
Need a business partnership attorney in New York?
Even under the best of circumstances, having a business partner choose to leave the partnership poses a challenge. At Levy Goldenberg, our experienced commercial litigation attorneys can help you navigate the dissolution of a partnership or the loss of a business partner. Reach out to us today to set up your consultation!