New business partnerships are a lot like a new marriage. They start with the best intentions, dreams with long-term goals, and a serious commitment to each other. While couples should have these conversations before tying the knot, business partners need to draft a partnership agreement outlining roles, pay, ownership, and processes for addressing disputes or exiting the company.
Ideally, the partners work harmoniously with great success, but even long-lasting partnerships change as partners transition to other professional or personal goals. Unfortunately, some business partners may also disagree over the company’s direction or their part in it, which can lead to a partner leaving or getting pushed out.
Breaching the partnership
Whatever the reason for the split, a partner may find that the business plan’s exit strategy was not used for the partner’s departure. Common scenarios include:
- A partner pushed a partner out without dissolving the partnership.
- A partner dissolved the company without discussing it with their other partners.
- A remaining partner agreed to dissolve the company but did not follow through.
- Not honoring the prearranged buy/sell agreement – for example, ignoring a formula for valuing the company or the exiting partner’s payout.
Going to court
Business partners often will negotiate disputes that arise during their exit. Still, some find breach of contract litigation is the only solution for enforcing the contract and getting their fair share. The details of each case will vary, but courts can award payment and even damages to cover legal expenses.