How to ditch bad business partnersFebruary 26, 2009: 5:19 PM ET
Planning ahead is your best bet for a successful resolution if a business deal turns toxic.
Amy, Wheeling, W.V.
I formed an LLC with two other partners. They are a couple. One owns 33%, the other 34% and I own 33%. We do not have any legal documents drawn up. I want to take the business and get them out. One partner does nothing and still works a full-time job and the other is a control freak making poor choices. This is a new venture, and they funded it with credit cards. The debt is small and I can easily take it over financially, but they will not sell the business to me. The response has been fantastic, and I want to have the business before they ruin it. Do I have any options at all?
By Kathleen Ryan O'Connor, CNNMoney.com contributing writer
Starting a business with partners is a lot like embarking on a marriage. Attending to details like what happens if it all falls apart can seem silly and unromantic. After all, you're in love. What could possibly go wrong?
But as any seasoned business owner can tell you, things go wrong all the time. The most successful entrepreneurs always plan for the worst from the very beginning.
The first mistake came when you started the business without a detailed and written-down operating framework.
"This was just not smart," says Francie Dalton, founder of a Columbia, Md.-based consulting firm that specializes in communication, management and behavioral sciences. Dalton is also the author of Versatility: How to Optimize Interactions When 7 Workplace Behaviors Are at Their Worst.
The time to have hashed this all out was when the limited liability corporation was first formed, she says. An LLC operating agreement should spell out all the rights and responsibilities of the partnership, from profit distribution to exactly how a partner can exit.
Drafting such an agreement doesn't have to cost a mint, Dalton says. Boilerplate legal language covers many of the details.
But since this didn't happen in your case, you now have two choices: Stick it out and draw up a solid agreement with the help of a lawyer, or get out.
"If she wants to stay, she needs to get a little bit of humility," Dalton says. If you want your partners to work with you on drafting bylaws for your company, you'll need to offer them something they want in return.
"Start or stop doing something that to make [the other partners] happy," Dalton advises. "Once she has given those things, then she can request what she wants them to start and stop."
If communication has become truly toxic, calling in a professional facilitator to manage the conversation might be money well spent.
Danielle Luffey, a marketing and public relations consultant in Minneapolis, founded DVA Brand Communications after a failed partnership – like you, she didn't insist on having the key details worked out in writing before she jumped in.
Looking back, Luffey wishes she and her partner had consulted a facilitator. The two had been longtime friends, which added another layer of difficulty when tensions arose over responsibilities and expectations. They eventually went their separate ways, but not before they had to work out some fairly painful details, like how clients would be divided and who got to keep the domain name and logo.
"I really felt like we were going through a divorce," Luffey says. And without a legal safety net set up in advance, there was little a lawyer could do at that point. "The attorneys said at the time, 'Since you don't have any paperwork, it's sort of up to you.'"
It's also very easy in the first blush of a new business venture to forget some basic rules of human dynamics. The fact the other two partners are a couple should have been a red flag to consider, Dalton says: "They are motivated to be a unified front."
Say you decide to cut your losses and move on. Now what?
They may not be willing to sell the business to you, but will they agree to buy you out? As Dalton put: "'Hey guys, here's my number and I'm out of your hair.'"
If not, it might be worth it to leave your chips on the table and walk away. There's at least one upside of having no operating paperwork: There is likely nothing in writing that says you can't turn around tomorrow and start your own rival business doing the exact same thing.
"This kind of thing can eat you up inside," Dalton says. "You have to decide if it's worth it."
This column provides general information only and is not intended to replace the services or legal advice of an attorney. Always consult a lawyer regarding any specific legal concerns, as laws vary from state to state.
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