The right business partnership has the power to create an amazing company. When business partners can bounce ideas off each other, share a larger vision and work together to create something awesome, companies are more successful.
Unfortunately, not all business partnerships end positively. While a business relationship may seem promising in the beginning, people can lose focus, develop different goals or make decisions that really hurt the business as a whole. Sometimes, business partnerships actually hurt the company more than help.
If you’re ready to separate from your business partner, you may feel tempted to just cut the cord and get it over with. But in order to keep your business as strong as possible, there are actually a few crucial steps you need to take before saying “bye bye” to your business partner.
Know Your Partnership Agreement
Before you can begin a business separation, you need to know who owns what. If you and your partner properly set up your business at the beginning of your adventure, you should have a contract that clearly states the roles for each partner and what each partner controls. This contract should also say what needs to be done in order to break the partnership.
Take a minute to review your partnership agreement and what needs to happen for the separation to be legal. You should also look for information about who will own that portion of the business after they leave the company.
If you did not create a partnership agreement when entering the relationship, you can look at what your state statutes say.
Talk With Your Partner
There’s a good chance your partner knows the separation conversation is coming. There may also be a chance that they’re looking for a way out of the relationship as well. This doesn’t mean you should skip over having a formal meeting to address the issues and talk through potential problems.
Schedule a meeting with your business partner somewhere that isn’t your office. Go out to lunch, grab a coffee or find a place where you can chat uninterrupted. By taking the conversation out of the workplace, you’re establishing level ground between you and your partner.
Let your partner know your issues and what steps you would like to take moving forward. Share your discoveries from evaluating your partnership agreement. Allow them to respond with their own opinions or insights and attempt to come to an agreement.
Come to an Agreement
There are a few different ways that you can end your business partnership. If you and your partner are willing to work together to determine the best exit strategy, you both could benefit from the separation.
If you’ve already clearly stated how you will end a business agreement in your initial contract, you will need to begin following the processes already laid out. Establishing the details in the beginning of your partnership can save you a lot of headache down the road, the same way a prenuptial agreement sets the terms for ending a marriage.
For partnerships without a dissolution plan in the initial contract, you may be able to buy out your partner from the agreement. In order to do this, you’ll need to get a business valuation to determine how much that partner’s portion of the company is worth. If you’re willing to pay that amount to remove the partner from business leadership, this can be a great compromise for both parties.
You may also want to consider only readjusting the terms of the original agreement. If you don’t want to completely eliminate the partnership, you can change the weight of the partnership to reduce the amount of ownership your partner has. With a smaller piece of the pie, the partner will have a smaller role in leadership.
File the Legal Documents
Once you and your partner have come to an agreement about the best way to end the relationship, you’ll need to follow the appropriate legal documents and forms to reflect the changes. There are various online services you can use to file the proper documents, or you may want to consider hiring an attorney to help you through the process.
Depending on the way the business was set up, you may need to close and open new accounts. This can include getting a new Employer Identification Number and establishing a new account with the IRS.
You will also want to inform any customers, vendors or business partners that the relationship has ended. While you may be hesitant to let them know there was a bit of a shakeup in the leadership of the business, honesty and transparency can be beneficial when you move into the next phase.
Dissolving a business relationship is never an easy decision, but sometimes it’s necessary. If you’ve decided it’s time to go through a business breakup, you need to do it the right way. With the right approach and an accommodating attitude, your business separation can go as smoothly as possible.