When two people get married, it is referred to as "tying the knot." That knot is a symbol of a bond not to be broken. In a business partnership, a knot is often a point of disagreement that impedes the flow of the operation of the business. Partners become at odds with one another and a resolution becomes necessary. Now, we are back to the marriage metaphor. Either the partners find a way to mend the relationship, agree to step back or separate for awhile or arrive at a divorce agreement. Let’s explore these three options:
Work It Out
Many successful businesses are built on partnerships formed between two or more individuals with complementary skills. Running a business requires multiple skill sets that are not often found in just one person. While each partner focuses on their respective part of the business, disagreements arise for a number of reasons. Partners begin to second-guess one another or fail to coordinate their work. A system has been forged with no thought given to the interlocking parts. No matter how gifted each partner may be, the way in which they work together is too often ignored. It is a matter of communication. If this can be remedied, then the first option is to save the relationship by defining roles. For example, one partner could be persuaded to focus on an area of specialization, such as sales or engineering. The other partner could take on the responsibility of management. These roles can be balanced by reporting to a partnership committee for major decisions.
A successful operation relies on each member executing their role. One of those roles might be a teacher, a manager or CEO. If a partnership is faltering, the complexity of the job may be more than the partners can handle. For example, there is no shame in hiring a CEO from the outside to assist with the operation of the business. Stepping back from management may give the partners time to investigate other paths or see if their disagreement fades in time. Even if the partners agree to turn operations over to a skilled outsider, they will not have to sell their business or dissolve it.
Come to an Arrangement
If the partnership simply cannot continue as is, there are several arrangements that can be worked out. The partners can agree on a buy-sell arrangement. They can also agree to divide, sell or liquidate the business.
A buy-sell arrangement is the lesser of two evils. One partner takes over the business. The other gets money. Of course, it is never that simple. One partner may be a more logical choice to take over the company. He or she may have the skill, motivation and knowledge, but what about the willingness to handle the financial risk a buyout imposes? The objective should be a win-win solution and avoidance of greed or vindictiveness.
Some businesses are comprised of two or more businesses. They can easily be divided. Partners divide the businesses among themselves. Whoever receives the less valuable part can be compensated.
There is always the option to sell the business outright to a third party. The partners may never end their disagreement, but at least they agree to spare the business the consequences.
If you cannot sell the business, you might have to dismantle it. Assets such as real estate can be sold. Assets of comparable worth can be divided among the separating partners. This is called liquidating the business.
The most costly choice that partners in disagreement can make is to do nothing. Not only will the business disintegrate, but this may impact personal lives as well.
If you have any questions regarding partnerships and their operation or are engaged in a partnership dispute, you should consult with a business law attorney. Contact this office for a consultation.
The Law Office of H. Benjamin Sharlin LLC
is owned and operated by H. Benjamin Sharlin and serves all of Mercer County, New Jersey and the surrounding areas. Mr. Sharlin is a bilingual Spanish-speaking attorney who vigorously represents the interests of all his clients.
Call (609) 585-0606 or click the button below to schedule an appointment