The break-up of a business partnership is much like the end of a marriage. It can be due to irreconcilable differences. Or cheating. Or that the partners simply don’t love each other anymore. And the end of a business partnership can be as difficult and bloody as a divorce. But just as some marriages end without warfare, so too can business partnerships. This post will talk about the dynamics of a business break up, and how to make it as amicable as possible.
When business partners have irreconcilable differences, they disagree over the direction of the business and no one’s willing to budge. One partner thinks it’s time to invest in new opportunities; the other thinks things are fine the way they are. One feels it’s time to move to a new office or open a new store; the other doesn’t see the point. Do they consolidate or expand? Do they acquire a competitor or allow themselves to be bought? These are core issues. And if partners can’t come to terms with them it can signal that it’s time for the partnership to end.
“Cheating” by business partners usually involves money, not sex. One partner might be taking money out of the till or under the table. Or writing checks to themselves for extra cash. Cheating can also mean one partner devotes less than full time to the business while surreptitiously setting up a new one. One way or another, cheating involves some intentional deception.
And what does “you don’t love me anymore” look like in a business partnership? Quite simply, it’s when one partner feels the need to move on. It could be a physical move to another part of the country, a decision to change careers; or a desire to work alone.
Business partnerships, like marriages, can be doomed to failure from the beginning. Successful partnerships hinge on the personality of the partners. If each partner has a different outlook or world view, things could be rocky. Some people view every engagement as a zero-sum game, in which you lose if you don’t win. Others truly believe in win-win opportunities. Those two people are going to have a hard time working together long-term, unless they understand their differences, and use them to the collective advantage of the business. For example, the “shark” in the relationship might focus on external negotiations, while the “peacemaker” might deal with employees. Partners also have to understand that they need to treat each other with more deference and respect than they might treat “outsiders.”
If and when the end of a partnership becomes clear, the hope is that it can be dissolved without a long, costly battle. Believe it or not, the seeds of that are actually sown in the way the partnership begins. Partners who have a written agreement when they form the business have a better chance of a civilized “divorce” if it comes to that. That document should spell out what each person’s responsibilities are and what happens if the partners no longer see eye-to-eye. Think of it as a business pre-nuptial agreement. You hope you’ll never have to use it, but it’s there if you need it.
Is there a way to dissolve a partnership without extended heartache and legal bills, even if there is no agreement? Yes. It’s all about being reasonable. If both sides act in an honest and trustworthy way, things should go relatively smoothly. If one partner hates the other, and is determined to get the best of them, they are in for a long fight. Unfortunately, this is often the case. There are plenty of opportunities for dispute when you’re ending a partnership. There are often differences of opinion as to who is entitled to what. When money is involved, it’s hard, even if both partners are honest people.
Even when there are grounds for a fight, we sometimes counsel people NOT to go to war. If there’s a possibility of winding up a business amicably, that’s often the best way, even if it means dropping some legitimate grievances. A long legal fight will cost the partners time and money, result in lost business opportunities, and will keep them from moving on.
When someone comes to me determined to engage in contentious partnership dissolution, I’ll typically ask them what net result would make them happy. Then, we try to get to that goal as efficiently (in terms of time and money) as possible. Let’s say a business is worth $100,000, but Partner A thinks he’s entitled to $60,000 when the partnership is dissolved. To prove he’s owed $60,000, Partner A may have to spend $20,000 or more in legal fees. So if he wins, he walks away with a net recovery of $40,000. If Partner A compromises and agrees to a 50/50 split, he has a net recovery of $50,000. Truly a win-win for both partners.
That’s why my advice is often this: “Look at where you are and where you want to end up. Look at the different ways of getting there and examine the cost of each in time, money and aggravation.” More often than not some sort of agreement makes the most sense. Even if you can’t reach a resolution, you’ll have a better understanding of what you’re fighting over. For example, if your soon-to-be-ex-partner is cheating on you, an amicable agreement might be difficult. If you have a dishonest partner and you can’t believe what they are telling you, you may need to litigate to even understand what you might be entitled to. Even there, my advice here is to weigh the costs of that fight in time and aggravation and then make a decision with your eyes open.
To be sure, it takes two to make an amicable dissolution of a business partnership. If your partner is unreasonable, stubborn, or otherwise refuses to negotiate, you may have no choice but to fight. But you still can always be on the lookout for opportunities to move to a resolution of the fight.
In a partnership, as in the dissolution of a marriage, it’s best to get out as whole as you can and move on. It’s often the most productive way to begin the next chapter of your life without letting the last one define you as you move forward.