Great business ideas rarely happen in isolation. It’s the brainstorming session with a friend, classmate or co-worker over coffee or a couple beers. The decision to go into business with a 50-50 partnership may seem perfect after coming up with the idea together.
This works for many co-founders, but for others diverging interests make the arrangement untenable over the long run. For this reason, it is important to take time to put together an adequate partnership agreement from the start. Lack of a plan and structure is the most common reason that business partnerships fail.
In this post, we share the top three reasons it might be time to part ways. And then we explain how to do so.
1. Can’t follow through
One partner may believe he or she is capable of handling the accounting and bookkeeping tasks. But lack of time or skill may mean these tasks are neglected. An illness or decline over the years can also affect a partner’s capabilities.
When it turns out that one partner cannot or can no longer handle certain tasks it can lead to a lack of balance.
2. Different communication styles and expectations
Styles of communication vary and can cause problem. Talking past each other can cause disputes if you are not on the same page.
Diverging expectations are another issue. One partner may want to keep the business lean while the other wants to hire employees and rent office space to grow the business.
3. Mismatch in investment
One partner may quit a full-time position and invest 70 hour weeks to build the company. The other may not be able to follow the same path and only have 20 hours a week on the company as a side-line gig.
Altering or dissolving the partnership
Many legal options exist to change the structure of your business. Altering the balance of the partnership may allow you to take on a majority share and more control over decisions while keeping your partner involved in a limited scope.
Buying out your partner is one way to continue in business. Or it may allow a way out. A letterpress and design studio in New York negotiated an amicable split when the partner who handled the finances and website became more interested in other professional opportunities. The partners agreed to a buyout plan that included monthly installments over six months.
Dissolving the partnership is the most drastic step, but may be the right path forward.
Plan ahead: The value of an early consultation with an attorney
A business attorney has the experience to identify potential issues and deal with them before they blow up. Your legal options in a partnership dispute will depend on the structure of your firm – a partnership, LLC, S Corp or corporation – and whether you are in Michigan or Ohio.
Before having a difficult conversation with a co-founder, you’ll want to make sure that you have access to important business information. For example, how are banks accounts accessed and what are the online passwords for Google+ or social marketing pages? If the firm has developed intellectual property, you’ll want to consider its value and how to protect it. These issues should be addressed as early as possible and prior to discussing a possible split.
Whether or not you addressed dissolution in origination documents, you need legal counsel to protect your interests and limit future liability. At NachtLaw, we have represented founders, early investors and employees in the technology field, software development, medicine and manufacturing business owners. When a partnership no longer meets your needs, your first step should include a consultation with one of our attorneys.