Divorcing your business partner
If one partner wants out, the other has a fiduciary duty to negotiate an exit strategy that won't damage the business.
Kath, Darwen, Utah
I am a partner in a restaurant and food-services business. I want to leave the business partnership, but my partner won’t buy me out. She says she’ll close the business and restart it, leaving me with nothing. I am only asking for the money I put in. Can she do this legally?
By Shara Rutberg, Fortune Small Business contributor
Dear Kath: Your partner’s conduct would probably be a breach of her fiduciary duty of loyalty to the partnership, according to David Sokolow, a professor of business organizations at the University of Texas School of Law.
“She cannot usurp the partnership's business for herself at the partnership's (and your) expense,” he says. “Courts are very unsympathetic to people who engage in oppressive conduct. She would be much better off simply buying you out for a fair price and then conducting the business as she sees fit.”
Your next step: Find a good lawyer.
“It’s very important for you to consult an attorney at this time,” says Suzanne Saxman, a partner in the Chicago office of Seyfarth Shaw and vice chair of the middle market and small business Committee of the business section of the American Bar Association. “You might want to start getting tough with this partner who’s making threats.”
Disclaimer: This column provides general information only and is not intended to replace the services or legal advice of an attorney or CPA. Always consult a lawyer or accountant regarding specific legal or financial issues.
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What's a fair split when partnering up?
My advice to you: you must find a good lawyer and try to get back your money.
Can't say as I blame the 'staying' partner. Quite often, businesses are run on tight margins…especially the restaurant business.
In a case like yours, a 'buyout' would likely mean that she would have to take out a loan to pay you off. That ONLY means HIGHER OVERHEAD and lower (if any) profit margins.
I had a partner in some housing do the same thing on me. They wanted out. I took out equity from the properties and all I got left with (after years of sweat, blood, tears)…was a higher payment!
In the future, my recommendation is that you negotiate your partnerships in such a way that NOBODY can get out of them in a manner which would encumber the 'staying' partner with an unreasonably high burden of debt for the buyout.
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In my opinion, your partner must give your money back. So try to talk to your partner again. But if she will leave you with nothing try to go to the court.