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Always try to minimize the fallout from a business partnership breakup

The Los Angeles Times reports that businesses in Southern California are increasingly optimistic about the potential for higher sales in 2015. Indeed, the vast majority anticipate maintaining or increasing their investment in leases, contracts and other long-term commitments together with increasing their marketing budgets. Many businesses in Southern California operate in the form of business partnerships. Stripped to its essence, a business partnership involves two or more persons carrying on a business for profit.

The Huffington Post astutely notes that a “business partnership can bring you triumphant glory or catastrophic disaster.” It advises that, whenever a business partnership-or any other type of business-is no longer viable, “Shut down when it’s not working.” There is no easy way to know when you may be giving up on a business partnership too soon. You need to trust your instincts. Sometimes, however, partnership disputes can result in a virtual paralysis of a business. If disagreements have become a distraction to running the business, it may be time to consider either dissolving the partnership or making some drastic changes in an attempt to keep the business viable.

Fox Business News suggests that there are several steps you can take if you perceive that a business partnership is imperiled. First, start by rereading the key documents. The most important document to review is the partnership agreement. After dusting it off, review it to see if it provides guidance as to: (1) how the partnership is to be dissolved, should that become necessary; and (2) whether it might be possible to invoke a buy-sell clause in order to buy out the interest of a disgruntled partner. There are other important documents to review as well. Make sure that you locate and read all employment agreements, debt agreements with personal guarantees and real estate lease agreements involving the partnership.

Second, double-check the businesses’ intellectual property ownership since patents, copyrights and trademarks are valuable business assets.

Third, give thought to how to limit your financial exposure. You do not want a vengeful business partner racking up partnership debts at the last minute. It is prudent to explore how to go about closing or capping financial lines of credit until the businesses’ affairs are sorted through.

Fourth, try to avoid getting into a public fight with your partners. Airing the businesses’ dirty laundry will just antagonize the partners, sully everyone’s business reputations, and make negotiations more contentious.

Moving forward

After it becomes apparent that a partnership cannot continue on its present course, it might be possible for you to either buy out a disagreeable partner’s interest in the business or, perhaps, sell your interest to that partner. The U.S. Small Business Administration advises that consideration should be given to revisiting the partnership agreement with an eye toward trying to come to an agreement to modify it. Modification could permit one or more disgruntled partners the opportunity to stay involved with the business while giving more decision making and financial control to the partners who can work well together. Conceivably, mediation might be a possible way to smooth over differences and continue the business. If no satisfactory agreement can be reached about the future of the business, it may be time to consult with an attorney about dissolving the partnership.

Seek legal advice

If you find yourself locked in a partnership plagued by constant disagreements and bickering, you should contact a California attorney with experience in handling partnership disputes.

Mark Wilson, a trial attorney, has won nearly every case he has tried or arbitrated. He lost only one jury trial and obtained a complete reversal on appeal. Mr. Wilson represents clients in business litigation and legal malpractice cases and was named in the 2017 – 2020 SuperLawyers Top 50 Orange County lists. Mr. Wilson is a California State Bar certified specialist in Legal Malpractice Law and can be reached at 949-239-0907; [email protected];