Planning for the End of a Business Partnership

No small business owner ever enters into a business partnership thinking about how it might go south, but it is a good idea to explore the possibility with your business law attorney before you sign agreements or cozy up to any contractual relationship, no matter how beneficial the relationship may be to both parties. Why? Because you need a clear road map for dissolving the relationship, and your Colorado business attorney can help you plan for the end, even if you never intend for that end to come.

Last week, a Colorado business found itself in the grim position of being sued by a co-founder and facing the difficult choices that come with dissolving a partnership that may be vital to the company’s existence. While the details of what went wrong are not the subject of this post, it would be wise for any small business owner to pause and think about the unthinkable. What if a vital partnership in your company ended? Are you and your partner(s) so much in sync that there is no way that could ever happen? Okay, maybe, but keep in mind, there are many reasons other than discord that can cause the end of a good business relationship; illness, death, a desire or interest in new opportunities, even decisions to pursue a different lifestyle than that of an entrepreneur. The rule is, change happens. The question is, are you prepared for it?

Business Formation and Partnership Rules

Business formation is a crucial element to being a successful business. You already know that without the correct business structure and operations, you may fail to have limited liability and be personally liable for any damages caused by your business, you, or your workers. But how do the various forms of business come into play when you are seeking legal advice for business contracts and partnerships? One of the biggest questions to ask your attorney concerns the exit strategy you and your partner(s) design when the business form is selected and/or the partnership is created. If an attorney helped you draft company documents, ask that attorney for a business planning consultation to explain the dissolution of any partnerships those documents describe. If you didn’t use an attorney, I can provide a business planning consultation and help you understand how business formation and partnership rules work for your particular form of business in the case of dissolution.

Divorcing a Business Partner

While it is a rare occurrence, some divorces are friendly – two people decide to part ways and are able to do so without animosity. But often, divorce turns ugly. Emotion, distrust, and accusation are the hallmark of many divorces because of the intimate nature of the relationship that is being dissolved. Divorcing a business partner is no different. If you are sharing a financial relationship, you are depending on and trusting one another. If either you or your business partner feel a loss of livelihood or lifestyle or even dreams and goals will result from the dissolution, things can turn ugly fast.

Plan for a Clean Exit With Business Partners

The very best time to plan for a clean exit with your business partners is before you enter into the partnership agreement. If you are thinking about taking on a partner, or entering into a partnership, contact your attorney – not only to review the agreement, but to help explain how clean exits for business partners can actually occur in Colorado. If you are already in a business relationship, ask your partner to sit down with you and discuss what would happen if one of you were no longer able to work. This is generally a less threatening way to discuss the end of a business partnership, even if it is not entirely comfortable to think about. If the discussion leads to legal questions, sit down with an attorney you both trust and talk it out. We all enter into partnerships hoping they will benefit both parties, and they often do. What happens when the partnership ends is what no one likes to think about or plan for. If you need to examine a current business partnership and do some business planning, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Attorney. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Real Estate Services for Business Owners

Elizabeth Lewis provides the following real estate law services to small and medium sized business owners in Denver and throughout Colorado:

• Commercial real estate purchases
• Legal review of commercial real estate leases
• Protecting your assets