Most business partnerships start out because one or both partners was afraid to strike out into the business world alone. It is much easier to become an entrepreneur with someone by your side than by yourself, mostly because it means sharing the responsibility as well as the success. Unfortunately, however, many business partnerships are ill-conceived and should never have been pursued to begin with. Only the most carefully designed business partnerships will succeed; they require mutual trust, the highest respect and common goals. If you have run into trouble with your partner in crime, you might be wondering if you should dissolve your business partnership.
There are so many complicated factors in this decision that it cannot possibly be discussed in full in this article. Whether or not you should dissolve your business partnership will be a decision based on personal circumstances rather than a formulaic, step-by-step process. What works for you will not work for someone else, so I’m going to guide you through the process of evaluating your business relationship, which will allow you to make an informed decision.
What type of business partnership do you have?
This is an important question, comprising economic factors as well as legal ones. A general partnership will be much easier to dissolve than an LLC or corporation, though any business can be dissolved. Consider assets that you and your business partner share, your customers, your inventory and any other factors that might influence the decision of whether or not to dissolve. In some cases, even when the partnership is sour, it simply doesn’t make good business sense to dissolve. Obviously, if you can’t overcome your differences, something will have to be done; however, you should be aware that you are facing a lengthy and potentially expensive process.
Why are you unhappy with your business partnership?
Some people just aren’t cut out to work together. Perhaps your visions for the business have changed over time and they no longer mesh. Or maybe you are dissatisfied with your partner’s decisions in your absense. It could boil down to customer service issues, product disputes or service quality problems. Whatever the case, you will need to evaluate the real reasons why you want to dissolve your business partnership. If your unhappiness stems from something that could be solved through something like mediation, you might want to consider alternate avenues of conflict resolution before dissolving the partnership.
How long have you been in business together?
A business partnership that has only lasted a few months will be significantly easier to dissolve than one which has existed for ten years. Over time, you develop ties to one another that cannot easily be broken, and to dissolve the business partnership could leave you both in a nasty situation. Further, you have to remember that long-term clients count on you both for either goods or services, so you should consider the length of your business partnership.
Is the desire to dissolve your business partnership mutual?
It is much easier to approach the discussion of dissolving your partnership if you are both unhappy. If, however, you are the only one who sees a problem, you will probably be met with resistance. This is especially true if you are hoping to retain the business name and customer base in order to strike out on your own; your business partner will probably do everything in his or her power to make this difficult for you.
How is ownership of the business divided?
Most partnerships consist of a 50/50 split of responsibilities and profit. This means that neither one of your can make decisions without consulting the other, which sometimes creates problems. Most partnerships consist of a more dominant and a more submissive partner, which can leave one or the other feeling less vital to the business itself. Trust me, this is a recipe for disaster. Even if the less dominant partner is unhappy with how the business is progressing, and even though he has just as much a stake in the business as the other partner, he will be less inclined to assert control. If you have this type of business partnership – where you feel that you aren’t considered in decisions – then it is usually best to cut your losses and run.
Will you start your own business?
Often, business partnerships die because one partner wants to start his or her own business. He might even want to retain the business name and the client base, as well as products or services. This creates a problem because the law is very clear about dissolving business partnerships. Unless one partner sells his or her share to the other or they come to some other agreement, the assets of the partnership will be divided equally when it is dissolved (this is called “deadlocked”). You’ll have to reach an agreement with your business partner upon the dissolution of your business in order to stay afloat, and if he or she will not agree to your terms, there simply isn’t much you can do. Further, even if you are allowed to keep the business, your ex-partner will want to reserve the right to compete.
Who do your clients favor?
And finally, you must consider your clients and/or customers. They, after all, are the bread and butter of your business, and the money goes where they go. If you are unhappy with your business partnership, you will have to consider the likelihood of your clients going with your partner once the two of your part company. Which of you has your customers had the most contact with? Who do they see as the “head honcho”? If you fear that your clients will want to stay with your partner, leaving you with no client base in your new business, it might be better to try and work out the partnership rather than dissolving it.