You and your best friend from grad school form a small tech start up in app development. You obtain financing to really market your product which you believe will disrupt industry standards. After two years of successful business together, you and your partner simply just do not get along. You both have different perspectives about the future growth and trajectory of your business together and neither one of you are willing to compromise anymore. While neither partner wants to effectively end the business, is it possible to simply end the partnership?
It might be time to dissolve a partnership if partnership disputes cannot be resolved without devolving into an argument, if you and your partner have different goals for the company, or if a partner seeks retirement or a new venture and no longer has an interest in maintaining the business. In a two-partner business, when one managing partner leaves, it is necessary for the other partner to reformat the business into a limited liability company or professional association. It might also be necessary for a partnership to dissolve if the other partner is suffering from health issues, is on the brink of bankruptcy, or if the death of a partner necessitates it.
Dissolving a partnership is much easier if a written agreement is in place. An agreement would discuss the exit from a partnership, how business will be wound up, or whether one or more partners would take over responsibilities from another managing partner. This can help eliminate potential issues from occurring if the partnership should end unexpectedly. Whether a departure is contested or uncontested lies in the reason for why a partner wants out of the union. Without a written agreement, dissolving the partnership can be more convoluted.
The partner should look to company bylaws or any written agreement they may share between themselves in addition to financial documents such as a list of assets and liabilities, or vendors, that they may need to determine who is liable for. The partner seeking removal from the partnership needs to be sure that they are no longer financially obligated for any debt that may have been secured in their name. You should have a formal separation or dissolution agreement drafted to protect you in the future.
Whether you have a question about how to form a business or how to dissolve one, there is a right and wrong way to handle it. Depending on the nature of your business, the parties involved, and whether the business will survive the partnership will all affect the dissolution process. Our Silicon Valley business lawyers at SAC Attorneys, LLP specialize in all aspects of business formation, litigation, financing and dissolution. Contact us to help you identify the solution to any business issue you may have.