How to shed a deadbeat partner
Dissolving business partnerships is more like divorce than divestment.
Mandy Hinrichsen, Drexel Hill, Pa.
My business partner and I are equal owners of a hair salon. We have a partnership agreement. I work hard and enjoy my job. My partner, on the other hand, is burnt out. She never shows up to work and when she does, she sits in the office on the phone handling personal business. I want to buy her out, but she refuses. What can I do?
By Paul Roberts, Fortune Small Business contributor
Business partners stuck in a bad relationship have legal options – but consider other remedies before getting the lawyers involved.
The problem you’ve encountered with your partner is one shared by many small-business owners, though not necessarily one that most people anticipate when starting a new company. The good news is that there are a number of options available to you – both legal and otherwise. The bad news is that unwinding your business partnership – should it come to that – can be a messy affair, akin to a “business divorce,” says Kimberly Ashbach of Ashbach Law, an employment law firm in Ambler, Pa.
Get it right at the beginning
“A properly written partnership agreement would set up the parameters for managing the business when thing are not working out,” Ashbach points out. “In the absence of an agreement, and a refusal by one partner to agree to a buy-out, the disappointed partner would have to withdraw from and dissolve the partnership.”
In other words, if your partner won’t agree to be bought out, you may need to allow yourself to be bought out – or even prepare to walk away from the business. When it comes to dissolving the business relationship, the courts can help, Ashbach says, especially if you can prove that your partner is making it impossible to carry on the business partnership.
“A partner can make an application to the court to dissolve the partnership, and the court would issue a decree of resolution in a variety of situations,” Ashbach says. Should the courts dissolve your business partnership, you and your partner would need to repay any outstanding debts and liabilities (for example, business loans, rent and leases on any equipment). What’s left over would be divided up between you and your partner to repay your contributions to the business. Any remaining profits would be split as well.
Ironing out those practical details amid the hurt feelings and disappointments of a failed business is a tricky affair that’s more akin to a divorce than a business negotiation – and it should definitely be done with the assistance of a lawyer. The separation of two business partners “needs to be handled in a way that the ‘wronged’ partner does not hold out for retaliatory or spiteful motives,” says Ashbach.
Before you get attorneys involved, however, consider setting up a meeting with your partner to try to work out an amicable resolution to the problem. Getting a neutral third party to mediate can help keep the discussion focused on the business problem at hand, rather than the emotional issues involved.
While organizations like SCORE and the U.S. Small Business Association provide counseling services to small business owners like yourself, this kind of dispute resolution doesn’t fall under their purview, according to a SCORE spokeswoman. Instead, you’re better off contacting your local bar association for referrals. Often, they will point you to area law firms or retired judges that offer mediation services for small commercial disputes, Ashbach says.
Online resources like mediate.com and JAMS also offer links to dispute mediation resources. Consider looking outside the legal profession: In many cases, mediators with a background in psychology can help.
This column provides general information only and is not intended to replace the services or legal advice of an attorney. Always consult a lawyer regarding any specific legal concerns, as laws vary from state to state.
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DiggMandy,
Just because you own the business 50/50, doesn’t mean that you should get paid the same amount. Anyone (including shareholders) that do work in the business, should get paid for their work. So if you are doing more work, you should be getting paid more. That doesn’t have to change your partnership; anything left over at the end of the year should be distributed to the partners 50/50, or however else you agree.
I think it is a common issue in small businesses to not differentiate between dual roles as “employee” and “shareholder”. But it is critical to potential growth because your role as an “employee” will vary over time (e.g. if you hire a manager to take over some of your current duties when you expand to another location, and you start focusing more on a different aspect of operations.)
If she is burnt out, she may welcome an offer to let her be a silent partner, and agree for you take a reasonable salary for the work you are doing, before any profits are distributed.
Dear Mandy Hinrichsen,
In my personnel opinion you please stop investing in the current unit anymore and start a unit in single ownership in another location and tell her that business is on expansion and you concentrate on second unit. By doing so your partner will herself concentrate more on business because it is her bread and butter.
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Having been through this many times and watched friends go through I know that every stituation has it’s unique dynamics.The one constant is you.You must decide how much energy you are willing to expend and at what expense.I have watched many friends lives come to a halt because of this stituation.There is a old proverb that says something like “Sometimes you must lose a battle to win the war”.I am not saying turn your back and let them walk away but emotions should have no bearing in negoations or concessions.Good Luck!!
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