A partnership is a formal business model in which two or more people participate. Each invests resources and shares the profits and the losses from the enterprise. Typically, partnership papers spell out the terms of the agreement and include steps for one or all of the parties to leave the partnership and void the agreement. When no formal agreement is signed, or if the details for a partner to leave the business are unclear, you still have options.
A partnership contract is like a prenuptial agreement that spells out what happens when the partnership no longer works. In the absence of a formal agreement, you can talk to one another to come to agreeable terms, much like two mature adults dissolving a marriage. A
- Offer to sell your share to the partner who wants to keep running the company.
- Agree to take fewer profits from the business and not participate in decisions about the company.
- Hire an intermediary to help you split the resources if you can’t agree.
- Shake hands and go your separate ways after splitting the remaining resources that may be left in the business.
Consult an attorney if you cannot come to a mutual understanding and split the company fairly. For example, if your company owns an extensive client list, you may need legal advice to split the list fairly or determine its fair market value.
Take Legal Steps and Cover Your Assets
As a registered business entity, you must follow state guidelines to dissolve the partnership legally, according to the Small Business Administration. Check with your Secretary of State’s office to get the required paperwork. After submitting what typically is just a one-page document, formal dissolution of your partnership occurs in about 90 days.
Avoid liability: Whether you had a written agreement or not, it’s wise to dissolve the partnership legally so that neither partner becomes responsible for debts incurred by the other. The formality also ensures that the other partner can’t take out any loans or make other obligations in the name of the partnership.