Business Partners Left Holding the Bag

By Nina Kaufman, Esq.

Today’s lesson: you can’t just “walk away” from a business partnership. Another submission from the Department of Horror Stories.

“Marcia” started a corporation about 15 years ago. She and her former partner, “Dara,” personally guaranteed a line of credit for the company .About 10 years ago, and after a protracted lawsuit, Marcia left the corporation with an agreement that (among other things), she would not have any further claims, rights, or obligations to the company. However, her name was never removed from the credit line . . . which Dara ended up tapping out a couple of years ago and filing bankruptcy to get out of the obligation. The bank is now breathing down Marcia’s neck.


Not a pretty scenario, is it? The agreement between Marcia and Dara covered matters between the two of them . . . but not between them and third parties (such as the bank). The fact that Marcia left the business 10 years ago has no bearing on her personal guaranty with the bank. From the bank’s perspective, the guaranty was for the line of credit itself and was not contingent on Marcia’s remaining with the corporation.

So as much as you want to walk out the door and not come back, there will be paperwork. Make a list of all people/institutions who need to be notified of your withdrawal.  This will include:

  • Any bank where the business keeps its checking account(s)
  • Any financial institution (such as credit card company or lending institution) where you have credit lines or credit cards
  • The company’s insurance broker
  • The state Secretary of State (if you are listed as the registered agent for the company);
  • Clients
  • Your accountant, to ensure that the forthcoming tax returns properly reflect your ownership interest (or lack thereof)
  • The company’s attorney (clearly, to draw up the necessary withdrawal agreements and company resolutions)

Have questions about working with Kaufman Business Law? This is the video to watch.