A common problem in business partnerships is an inequity in the amount of work put in by each partner. This can be especially challenging in situations where profits are shared equally. This can quickly lead to damaged morale and adversely affect productivity.
Business Partnership Agreements
As with all problems that arise in business partnerships, the first step is to closely examine your partnership agreement. Similarly, you may want to look at your other business agreements and contracts made between the partners. These documents may provide a solution to the problem such as provision for a buyout in case of conflict between the partners. Understanding the terms in these documents will help you know your options. If you do not have a formal agreement among the partners, you can proceed within the limits of state law to try and remedy the situation.
You may want to consider having a conversation with your business partner to let them know your position and find out if they realize they have been putting less effort into the business. Perhaps there is a reason for their underperformance that you are not aware of or maybe hearing you address the issue in a constructive manner will bring about a change in their productivity. It might be appropriate to discuss renegotiating your agreement with your partner so that you have a larger interest in the business and profits are weighted to address the inequity of work performed. A buyout of your partner’s share of the business could be another alternative worth exploring.
Dissociate a Business Partner
If you cannot reach an agreement with your business partner, you may need to file a civil lawsuit to ask the court to dissolve the company or to dissociate your partner. The courts can expel, or dissociate, a partner or dissolve a business in several instances where a partner:
– is found to have engaged in wrongful conduct that adversely and materially affected the partnership business; or
-commits a material breach of a legal duty to the partnership or other partners; or
– engages in conduct relating to the business that makes it not reasonably practicable to carry on in business with that partner.
In making determinations on whether to dissociate a partner or dissolve a partnership business, the courts will look to the facts of the individual case to determine whether the partner’s conduct rises to the level required by statute.
Dissolving a Business Partnership
When a partnership dissolves it must still complete the process of winding up the business of the partnership. An accounting must be made of all the partnership’s assets and debts. If the assets of the partnership cannot cover the obligations then the individual partners are responsible for the remainder. If the partnership assets exceed the obligations the remainder is distributed to the partners. The partnership will additionally need to file IRS Form 1065 on behalf of the business and the partners will be responsible for their individual taxes related to operating the business.
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