How to Remove a Partner
DON’T LET THAT SCARY PARTNERSHIP TURN INTO A BLOODBATH
Halloween is just around the corner and I guess I’m in the All Hallows’ Eve spirit. I thought to myself, “Shushan, what’s a good scary example in the law?” Well, what’s scarier than a partnership gone bad? Unfortunately, for many business owners and the lawyers who work with them, the nightmare of partnership disputes doesn’t happen only on Elm Street and it certainly doesn’t wait until Halloween.
Unlike the victims in horror movies, partnerships can take preventative measures to minimize or even avoid the damage caused by the dissociation of a partner. But then again, the people in The Ring could have just not watched the video. See? Prevention is so much better than reaction! This is something I say over and over to my clients: a well drafted partnership or operating agreement (if you’re an LLC) can make all the difference. Sadly, sometimes it’s too late for prevention and the relationship is beyond help – you might as well call the reaper. From now on I will refer to both members of an LLC and partners of a partnership as “partners” for simplicity.
Here are a few ways you can get rid of a partner if the partnership or operating agreement doesn’t vary the default statutes and doesn’t provide for the expulsion of a partner by a simple vote. And by “get rid of” I mean it strictly in the business sense.
DON’T FEAR THE REAPER!
This first way is the least painful. Sometimes the partner looking to leave will express that desire to exit the partnership and the partnership will gladly show them the door. In reality, the dissociating partner has the power to dissociate any time without repercussion so long as it isn’t in breach of the partnership agreement and the partnership is not for a definite term. So, if the partnership has taken a fearsome turn because of one or more of its partners, “I am dissociating” can be three of the sweetest words a partnership hears.
A LITTLE NUDGE INTO THE LIGHT, OH FRIGHTENED ONE.
The departure of a partner can be by mutual consensus. Again, this is one of the less painful ways a partner can get the axe. The partnership may have to do a little cajoling, but it may be able to convince the partner to leave. What kind of hocus-pocus does that entail? Well, each person and situation is different, but cold hard cash often does the trick. Treat your departing partner with a tasty buyout offer. If the partner didn’t have any intention of leaving on her own accord, then the partnership will have more work to do to convince her and it may all come down to personalities. How reasonable is the dissociating partner? How much does she stand to gain, or lose? Is there a troubling personal history between the partner and the partnership? The answers can determine the likelihood of success of a buyout offer.
A PARTNERSHIP EXORCISM!
In some circumstances, one of the partners is a no-good charlatan. The partner may have been embezzling money from the partnership or undercutting the partnership by self dealing or engaging in other wrongful conduct adversely and materially affecting the partnership. If such wicked partners are poisoning the company then those partners may be expelled by judicial determination. It’s probably clear that this is one of the more difficult and uncomfortable methods of removing a partner, but it may be the only way for some.
FULL ON APOCALYPTIC.
If all options have been exhausted and all hope is lost, then there is one way to rid the evil from your world and that is by destruction of the world itself. If the partner is so awful that the continued existence of the partnership with that person is out of the question, then the last resort is dissolution. Dissolving the partnership will end it all, so it should be very carefully considered. Furthermore, depending on whether the company is a general partnership or an LLC, you may still need at least half of the partners to approve the dissolution. This option is not for the faint of heart.
It’s not easy to oust a partner, which is one of the reasons why careful selection and thoughtful planning are essential to the partnership formation process. Once you have given the vampire permission to enter, he’s not going anywhere – it’ll either take a stake to the heart or, if he’s one of those friendly and reasonable vampires, simply asking nicely. Which outcome is more likely? Are you willing to venture into the darkness to find out?
Disclaimer: Nothing in this article is, nor is it intended to be, legal advice. Please consult with an attorney for your individual situation.