Removing one of the business partners from the corporate bank account poses one or more problems. Often, even professionally drafted partnership agreements do not spell out the terms and conditions that allow a partner to remove another partner from either the bank account or the business generally. The same problem exists when there is no written partnership agreement. In both cases, the legality of the action may be uncertain. But there's another problem that precedes this one. Even if the partnership agreement specifies the conditions under which a business may remove a partner from the company bank account, the bank itself may not allow it without that partner's approval.
Joint Business Accounts
Imagine that you find yourself with a business partner with a gambling problem. He has repeatedly raided the partnership's joint bank account. It seems sensible and necessary for the survival of the business that you cut off his access to funds. Unfortunately, unless the troubled partner agrees, you cannot legally remove him from the joint business account. As long as his name is on the account, he has full access to its funds. A Bankrate article, "Risks of Joint Accounts," quotes Brent Adams, a Senior Vice President at Private Bank of Buckhead in Atlanta: "There is no protection for either party with a joint account. "There is nothing (the bank) can do to protect either party if the other person comes in and withdraws all the money."
Dissolving the Partnership
So long as the partnership remains in business, the one generally recognized way of stopping a business partner from taking actions harmful to the partnership is to seek a remedy in court. Presented with an injunction against the partner, for example, the bank may honor it and refuse to allow that partner to remove funds. But they may not, or they may freeze the account entirely and wait for the court's further determination.
Unless the partner's actions rise to the level of criminal behavior, the best available solution at that point may be to dissolve the partnership. Unless a partnership agreement lays out the terms for dissolution or the partners can at least agree on how to close the business, dissolving the partnership may require court oversight, which is time-consuming and expensive. Each state's laws determine the partners' obligations in a court-supervised closing. In order to minimize your liabilities, particularly in a contested closing, you may want to initiate the court-supervised dissolution under the direction of your business attorney.
Often, when business partners have serious disagreements they may contemplate court action, either to resolve a dispute in favor of one or more partners, and against others, or to dissolve the business entirely. At some point, however, it may become clear that the court solution is more like a bad divorce, where the two parties spend most of their joint assets fighting each other. Mediation may provide an alternative. A Nolo article, "Why Consider Mediation," points out that it is usually a far faster and less expensive solution than actual litigation.
Patrick Gleeson received a doctorate in 18th century English literature at the University of Washington. He served as a professor of English at the University of Victoria and was head of freshman English at San Francisco State University. Gleeson is the director of technical publications for McClarie Group and manages an investment fund. He is a Registered Investment Advisor.