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What happens when one of your business partners leaves?

On Behalf of | Apr 12, 2022 | Uncategorized |

There are several reasons why one of your business partners might decide to leave. The majority of them revolve around disagreements about finances, management and control of the business.

When things don’t work out between you and a partner, they may decide to pull away from the partnership. In such a case, what is the future of your business? Do you have to close up shop?

Here is what you need to know if a partner leaves the partnership.

You do not have to dissolve the partnership

First, it is important to refer to your partnership agreement when a partner decides to withdraw. A well-crafted partnership agreement should at the very least provide direction on what should happen next. 

Before the revision of the Uniform Partnership Act (UPA) in 1997, a partnership would automatically dissolve if one of the partners left. However, under current laws, the partnership can continue even if one of the partners chooses to exit. 

The remaining partners can buy out the absent partner’s stake and restructure to keep the partnership going. There may be issues with the valuation of the outgoing partner’s stake which your partnership agreement should address.

Avoid any legal issues with your partnership problem

Sometimes, your partnership agreement may not provide clear directives on dealing with a partner who wishes to exit. In addition, disputes with the outgoing partner may arise regarding their exit from the partnership.

Therefore, it may be advisable to seek help and ensure that you do not end up being involved in costly and time-consuming litigation. Remember, how you handle your business partner’s exit could determine the future of your business.