Many experienced entrepreneurs have said that business partnerships are like marriages. Half of them work out very well and the other half can’t last. I have been a partner in several startups and have to admit that most of my partnerships didn’t work out.
There are a number of reasons you might consider ending a business partnership:
· You have different expectations.
· You have too many personality conflicts.
· You have problems building trust with each other.
· Your partner’s skills don’t add to the value of the business.
Ending a business partnership is never easy, especially when your partner has been a close friend or family member. However, you owe it to yourself, your partner and everyone who depends on your business to end an endeavor that isn’t working out.
How Do You End a Bad Business Partnership?
Many entrepreneurs realize that a business partnership isn’t working out, but never take the steps to end it. They may be too timid, don’t know what to say or feel that they are bound to their contract with each other. There will always be ways out of the relationship. Here are some approaches you should consider.
Look at the Partnership Agreement
You and your partner should have a legal agreement in place that defines each of your rights. Your partnership agreement should state what measures will be taken if either of you decide to end the partnership. However, some entrepreneurs don’t think about this ahead of time. This will make things trickier, but you should still be able to come up with a solution that will work out best for both of you.
Offer to Buy Out the Partner
One way you can end a partnership is to buyout your partner. You should use the partner’s net stake in the business (share of assets minus liabilities) as a baseline for determining how much the business is worth. The value of your partner’s share in the business is the percentage of the company she owns multiplied by the equity value of the entire firm. However, you may need to pay a premium for her share if you want to encourage her to sell out.
For example, the equity of the company may be worth $750,000. Your partner has a 33 percent stake in the company, which means the value of his share is $250,000. However, you may want to consider offering $300,000 or more to encourage her to sell her share.
You may find that the only way to end the partnership is for the two of you to dissolve the company. You may both agree that the business isn’t working out as well as you’d hoped or you can’t find the capital needed to buy out your partner.
Dissolving a business is obviously a very drastic step. This may be the right approach in some situations, but it may be unnecessary in others. You should always try to find a way to resolve your differences beforehand.
Did your partnership fall apart because your partner embezzled money from you or your clients? Did they do something that could have caused you to be sued? You should get a good attorney and play hardball.
Work With a Good Lawyer or Arbitrator
Ending a business partnership can be messy. You should make sure that you work with a good attorney or arbitrator who can help find a solution that will work to your advantage. One of the benefits of working with an arbitrator is that they can help find a solution that may protect your relationship outside your business.
About the Author: Kalen is a business writer and entrepreneur. He currently writes about getting a masters degree in dispute resolution.
Last Updated (07 March 2013)
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