Business partnerships are built on trust, collaboration and collective expertise. As business owners, your experience significantly contributes to the company, just as your partner brings a crucial perspective to its growth. However, a time may come when your journey as partners must end and parting ways becomes the best course of action.
In navigating this transition, there are certain pitfalls you must avoid for a smooth and fair dissolution process.
Ignoring the partnership agreement
The partnership agreement acts as a rule book for your business. It states how your business will operate, how you will resolve disagreements and the rights and responsibilities of each partner. Ignoring this document is a common and costly mistake, as it also provides mechanisms for handling various situations, such as partnership dissolution. By neglecting this agreement, you could potentially forfeit your rights or find yourself in legal trouble, such as liability for decisions or actions that weren’t approved by both partners or for breach of contract.
So, even in tense situations, it’s important to respect the terms of the agreement initially set by you and your partner. Doing so helps both of you reach a fair outcome.
Not having a clear exit strategy
An essential part of the agreement is the “exit strategy,” which outlines what happens if a partner leaves the business. It provides steps for dividing business assets and dealing with debts during partnership dissolution. Preparing this strategy in advance offers guidance if a partner decides to leave the company. Without it, uncertainty can lead to disputes, potentially harming the business.
Not considering legal counsel
Dissolving a partnership is a legal process and can be challenging, especially in complex situations. So, in these situations, an attorney can be crucial as they can help you understand your rights and obligations and ensure your compliance with all legal requirements. They can also mediate any disputes and protect your interests during the process. Even if you and your partner are parting on good terms, consulting a legal professional can be beneficial for a smooth and legally sound process.
Knowing what to expect after a dissolution
Following a dissolution, the business may either continue under a new structure or cease operations entirely. There are many responsibilities to attend to after a partnership ends. To fully understand the legalities and financial effects of ending a partnership, you should consider consulting with an attorney.