By - Jeremiah Grant
Last Updated - July 12th, 2023 2:54 AM
Jul 12
Partnership disputes can be painful, and if not resolved in time, it can hurt your business big time. And oftentimes, the only way you can resolve disputes is by calling for a dissolution of the partnership altogether.
You see, there are alternatives, such as a buy-out agreement or a new mutually acceptable partnership agreement brokered by an attorney. Nevertheless, many business partners are at a point of no return.
So in such situations, the only question that matters is how to get rid of a 50 50 business partner.
But it goes without saying that getting rid of your business partner is by no means easy. After all, as an equal partner, they’re as deeply embedded into the business as you.
Not to mention, the partners might well bring along their unique skills and talents that benefit the business, making their exit more complicated.
Meaning a situation involving the removal of a partner or an impending partner exit out of a dispute calls for a combination of smart strategies and assistance from seasoned business attorneys and business valuation consultants, among others.
Now, if you’re wondering how to get out of a 50 50 partnership, you’re at the right place as we’ve created a detailed guide on effectively ending a business partnership.
We’ve included our own experiences as well as our expert tips and tricks for a quick remedy to partner disputes. So read on to find out when and how to get rid of a 50/50 business partner.
Why get rid of a business partner in the first place?
Before we get into how to get rid of a 50 50 business partner, it’s important to understand why such a situation arises.
To start with, there are no pre-set criteria for a partner disagreement, meaning the source of the dispute can be just about anything. However, things come to the brink only in the rarest of rare cases.
For instance, a company may be making losses in consecutive business valuations, and one of the partners might be cashing in, indifferent to the situation. In this situation, it’s pragmatic for a partner to establish the company’s exact dollar value from neutral third-party business valuation firms and then try and force such a partner out in an effort to address and fix the crisis.
Similarly, a situation might involve one of the partners acting like an angel investor while another partner is entirely responsible for operational planning and execution, besides their own share of investment. This is sure to make the latter feel disgruntled and look for ways to get out of such a partnership.
There are more such instances that cause partner disputes, explained in detail by a Harvard Business Review article titled ‘When Partners Fall Out.’
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What rights do you have as a 50% business partner?
Now that you’re aware of the situations that warrant a partnership dissolution, you might well have considered whether or not your partnership status demands such a step.
And if you’ve decided on getting rid of your business partner, the next big question you’d likely ponder upon is the extent of your rights to do so.
You see, the rights that you’ve as an equal partner in the business are determined by the terms of your partnership agreement.
Here’s an example for a better understanding:
As we discussed earlier, a situation might involve partner A burdened with all the responsibilities of running the business. Herein, partner A will surely feel unjust for partner B with the least share of responsibilities, to take away equal profits.
In fact, partner A might well want to force partner B into a buy-out and get into a partnership with other individuals instead.
Now, it is possible that the partnership agreement includes a term that requires both partners to put in equal time and effort or a minimum number of hours. And if so, partner B is in clear violation of the agreement, which in turn gives partner A a legal right to seek buy-out from the former.
For instance, let’s say you and your partner own a chiropractic practice. So, if a recent chiropractic practice valuation showed losses that you’re sure have been caused by your negligence, you can seek a buy-out.
Also, if the agreement doesn’t include such provisions, partner A’s best bet could be to consult a seasoned business attorney and look for legal remedies in the state and federal laws.
How to get out of a 50 50 partnership using your rights?
Getting out of a partnership can be complicated but necessary. So when the question of how to get rid of a 50 50 business partner arises, it makes sense to avail your legal rights, which include:
#1. A pre-existing buy-sell agreement
Many business partners mutually agree to a buy-sell clause at the time of preparing their partnership agreement. And although meant to allow partners the liberty to sell their stake in the business, the buy-sell agreement can also empower you to get rid of the partner.
How?
Well, the buy-sell clause includes legal provisions on how a partner can buy-out the other partner. Also, such a clause allows a partner to sell out entirely to a third individual, either partially or entirely.
And a potential violation of the partnership agreement creates an opportunity to legally force your partner into either of the two buy-sell options. The Shotgun Clause, as this provision is called, is often a part of partnership agreements and is an effective tool to get rid of your partner.
#2. The federal and state laws
It is possible that your partnership agreement is vague and doesn’t include clear terms of buy-sell or even conditions that necessitate a forced buy-sell. This usually happens when two close friends or associates come together to form a partnership and don’t feel the necessity to outline partnership terms in detail.
In such situations, your best bet is to look into what the federal and state laws say and approach the court on its basis.
For instance, it’s possible that your partner has violated any of the federal or state laws during the course of business. And if so, the court can, by order, either dissolve the partnership or outrightly remove the erring partner from the business.
Similarly, a court is also empowered to order a partnership dissolution or force a partner out even if that partner hasn’t violated any law.
You see, a partner’s actions, although within the legal limits, might cause harm to the business, which in turn can cause huge economic losses and massive unemployment. So the court can, in the larger public interest, order a partner’s exit.
As such, we suggest you get in touch with your attorney, explore all the possible remedies, and subsequently reach the court.
Note: 50/50 partnership buy-out calls for effective attorney intervention
When a business partnership is on the brink of breaking down, it implies that both the professional and personal relations between you and your partner have soured. Meaning negotiating a buy-out settlement will not be easy at all.
In fact, your partner might not be willing to have a conversation, set aside points to agree upon.
So it’s important for both partners to let their attorneys do all the talking, apart from the remedies and suggestions they bring to the table.
An experienced attorney will not only kickstart the talks but also apply clever negotiation strategies to turn the deal in your favor.
How to get rid of a 50 50 business partner: the steps
Having decided on ending the business partnership, there are a few steps you can follow to legally dissolve the partnership agreement.
It’s true that terminating such a business arrangement isn’t easy, even if you inform your partner that the working relationship shall be longer operational. After all, the partner can resort to anywhere from not cooperating to advertently slowing the process down.
Nevertheless, with a sound strategy and the right steps, you can get rid of your 50 50 business partner way more easily.
So here’s a 5-step process that you can follow to effectively terminate a partnership:
Step 1. Undertake a thorough review of your partnership agreement
The partnership agreement is the mainstay of the business relations between you and your partner. As such, it contains all the legal provisions detailing the circumstances and the methods of dissolving the agreements.
In fact, even if the agreement is vague on the working principles, division of roles and responsibilities, etc., it will surely contain the exit protocol for partnership termination. We suggest you read all such provisions in detail and also share a copy with your attorney.
Now, a partnership agreement involving more than two partners typically involves provisions to remove a partner, like a vote among or a unanimous decision by all other partners.
But that’s not the case with a 50/50 partnership agreement, meaning you need legal provisions within the agreement along with solid evidence to fire your partner. All the more reason why a thorough review of the agreement is key.
Step 2. Have a discussion with your partner
Initiating a discussion on partnership dissolution is complicated. More so as business partnerships are also backed by personal relationships, often spanning years.
Nonetheless, it’s essential to start a healthy and honest conversation on the matter. And that involves scheduling meetings to discuss the existing financial and operational health of the business, liabilities, etc., apart from the exit terms.
It is possible that the relationship between you and your partner has gotten bitter. So much so that both parties want to avoid a one-on-one meeting. In such circumstances, you can either ask your attorney to accompany you to the meetings or let the attorney attend the meetings on your behalf.
A dissolution form is filed in the state where your company is registered and is followed by a public announcement. Herein, while the filing of the form serves the legal purpose of kickstarting the partner’s exit formalities, a public statement makes the employees, customers, creditors, etc., aware of the dissolution.
Filing a dissolution form is also seen as a protective measure since you or your company will no longer be held responsible for the debts and liabilities of your partner.
Step 4. Notify the relevant parties
Once you’ve filed for dissolution and started the process of ending the partnership, it’s time to notify all the parties relevant to your business. This includes employees, clients, customers, landlords, creditors, government entities such as the IRS, etc.
Now, you need not individually notify the parties involved since doing so can be logistically challenging and sometimes impossible too. You can simply finalize a mutually agreeable public announcement along with your partner and release the same in public via media and other appropriate channels.
Step 5. Settle upon and close all accounts
The last step in a partnership dissolution is all about the settlement and closure of the company’s accounts.
Here are three sub-steps for settlement and closure:
Settle all the debts of the company.
Close down the company’s bank accounts.
Distribute the assets as per the partnership dissolution agreement.
Bonus: A partner exit may necessitate business valuation
Whether you’re buying out your partner or compelling them to sell out, a business valuation can bring clarity on how much the company and subsequently the partner’s shares are worth.
For instance, let’s say your partner owns 50 percent of your construction company. Now, by valuing your construction company, you can know exactly how much the partner needs to paid in a buy out.
This, in turn, will avoid potential conflicts and ensure a smooth partner exit.
While firing a business partner is possible, it isn’t something that you can do instantly or out of the blue. That’s because such a step can only be taken if there are provisions in the terms of the operating agreement.
Also, it’s essential here to clear the air over the term “fire.”
You see, unlike firing an employee, firing a business partner technically means expelling them from the business in the rarest of rare situations.
Similarly, the business partner can also be expelled by a court under various circumstances, as we discussed earlier.
For instance, let’s assume you and your partner own a struggling landscape company. Now, if a recent landscaping business valuation sheds light on your partner’s actions that harmed the business, this can be a ground to expel the partner.
2. How to force your partner to sell out?
As we saw earlier, forcing a partner to sell is legally feasible and comes under the Shotgun Clause or buy-sell clause of a partnership agreement.
Herein, a triggering event such as a recurrent tendency to not take up the responsibilities, bankruptcy, incapacitation, divorce, etc., allows you to invoke the clause and force a sell-out.
3. How to get out of a 50 50 partnership in the absence of an operating agreement?
It is not uncommon for partners to lack an operating agreement between them. And the best way to get out of a partnership in such a situation is to get in touch with your attorney.
The attorney, depending on the situation, will suggest a host of measures, including:
Complete buy-out where you successfully convince the partner to sell their ownership to you, albeit under favorable terms.
Partnership dissolution, which despite being the last resort, is an effective way to get rid of a business partner.
Note: the process of ending a partnership oftentimes ends up in a dispute and a subsequent deadlock, and the best recourse in such events is to file a lawsuit.
4. Can your partner force you to sell out?
Yes, your partner can force you to sell your ownership of the business.
However, they’d need to prove a violation of the operating agreement and establish that legal grounds for forcible sell-out exist under the agreement. And that’s a lengthy and tedious process that needs your partner to furnish full-proof evidence.
Meaning you can hire an attorney and file a lawsuit disputing the partner’s claims in the meantime.
5. Can you force your partner to buy you out?
Yes, it’s possible and can happen under two circumstances, namely:
A pre-existing buy-out agreement that states specific circumstances where a partner is required to buy the other partner out.
An absence of a buy-out agreement but an existing buy-sell agreement, along with a compelling reason for you to leave the business. For instance, a triggering event such as incapacitation.
Note: your partner might dispute the buy-out agreement or outrightly refuse to buy you out in the absence of it. And in both cases, you can initiate legal action.
Nevertheless, you’ve some legal rights wherein you can reach the court for the same. And a court might well dissolve an LLC if:
The LLC will violate the terms of the partnership agreement if it continues to operate.
The partner has either died or is incapacitated.
7. Can you fire a 49% partner as a 51% owner?
Even if you’re the majority partner of a company, you can’t fire a minority partner unless there’s a serious violation of the operating agreement.
Similarly, you can’t even force the minority partner to buy-sell unless there are compelling reasons to do so.
Conclusion
As you can see, there are multiple legal means to get rid of a business partner. However, it is the last option, meaning you should explore other options before calling for an end to a partnership.
For instance, the idea of how to handle disputes in a 50/50 partnership is something worth looking into.
But it goes without saying that things can come to a blow, making partnership dissolution the only way out.
Lacking the right partnership closure strategy?
Rest easy, as we can assist you with the ideal financial measures to acquire sufficient buy-out funds, clear all outstanding liabilities, and more.
We’re a team of seasoned business valuators and attorneys with more than two centuries of combined experience in the industry. And we can help you achieve a partnership dissolution that best suits your interests.
Jeremiah Grant is the Managing Partner of Arrowfish Consulting. In addition to acting as a primary liaison for many of the firm’s engagements, He primarily focuses on business valuation and economic damages expert witness assignments, in addition to forensic accounting and insurance claims analysis.
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