When your partner isn’t carrying his financial weight or responsibilities

You find someone with similar interests and have a great business idea. You go down to the County Clerk to file a Certificate of Partnership (Assumed Name) and start your new business. However, you soon discover that your “partner” is a partner in name only and is not sharing the financial responsibility or workload.  What are your options?

  1. Do nothing – continue with the frustration and stress;
  2. Talk with your partner about your concerns and follow up the conversation with a written notice or summary of the issues and work cooperatively to improve the situation;
  3. Try mediation; or
  4. Terminate the partnership.

In the case where the partners do not have a written partnership agreement, a partnership can be terminated by written notice to the other partner(s). If there is a written partnership agreement, the partners should consult it to determine the procedure to follow. Once the partnership is terminated, the partners must “wind up” the partnership business and distribute the partnership assets. A partner may also seek a court-ordered dissolution and division of the partnership assets.

Written partnership agreements set forth the responsibilities of each partner, the procedure to end the relationship, and guidelines for how to value and distribute the partnership property. When there is an absence of this agreement, these issues need to be resolved between the parties or by a court. These can be difficult and expensive situations. It is easier to agree on issues when you are starting the business and on collegial terms. When there is a dispute, emotions take over, complicating the situation. The dispute may also cause damage to the business, reduce its value, hurt its reputation, cause employee issues and interrupt the daily operations. It is important to enter a written partnership agreement. If you have been operating without one, now is the time to get one in place.

You do not have to continue to be in business in an unworkable situation. There are solutions available. Terminating a partnership is a complex process and it is best to seek legal guidance to evaluate the best way to deal with your particular situation.

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