Difficult Conversations for Business Partners

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq., owner of Ask The Business Lawyer, is an award-winning business attorney, speaker, and Entrepreneur Magazine online contributor. She saves consulting and professional services companies time, money, and aggravation by serving as their outsourced legal counsel.

Posted on December 22, 2013 in Business Partners

The last couple of weeks have been filled with frantic inquiries from entrepreneurs looking to get out of their business partnerships. Is it something in the air? The upcoming election season (“time for a change”)? The dread of starting another tax year with this albatross of a business partner? Or the potentially depressive gloom of shorter days and colder nights?

Here’s one kind of “pickle” that has arisen:

“Joe” (who is not a plumber) and “Dave” are 50/50 owners of an LLC. Over the last two years they’ve had the business, Joe realized there was a LOT he didn’t know about Dave . . .such as his precarious financial state and un-agreeable business practices. Joe finally decided he wants out. But what’s a fair way to divide the assets?

Answer: It depends on a variety of factors.

  1. The operating agreement. If it’s well-written, there should be a provision in it that discusses how the company will be valued (there’d be a formula or maybe they have set a number that would be re-evaluated).
  2. Has Dave done anything criminal? Generally, if two partners are 50/50, that’s how the assets will be split . . . unless there’s a case to be made against the other partner for harming the business (and, assuming the operating agreement penalizes a partner for wrongdoing).
  3. Can both partners see reason? If the partners have any sanity, they’ll agree to split the assets evenly (to the extent that they exceed the debts) and walk away. Or, in the case of a database of clients, for example, the partners could share it and both would have the right to use it).

These are the toughest of all conversations. Whether you’re breaking up a business partnership or breaking off a personal relationship, they’re ugly, unpleasant, and the cause of a lot of pre-conversation anxiety (which is why many people avoid them).

I have used (and recommended) the book Difficult Conversations, by Douglas Stone, et al. The book offers advice for handling thorny exchanges in a manner that accomplishes their objective and diminishes the possibility that anyone will be needlessly hurt.

 

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