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Question added to topic Grow Your BusinessMay 13, 2011

Can a Partial Partner Shut Down a Business?

A 50-percent partner has put more money into a business than the second partner. He has threatened to file dissolution, or to shut the business down, if the second partner doesn't put an equal amount of money into the company. Can he do that legally without the second partner? What factors should both partners consider?
Shuttering a business because the other partner won't pony up is a clear sign of discord. The partner demanding the contribution could either be trying to (unfairly) precipitate a rift, or could be rightfully expressing concern that he or she will be carrying the weight of the business. If that's the case, then the partner not contributing will be getting 50 percent of the business but not making 50 percent of the contributions.

That said, unless you have a written agreement in which you promise to make more contributions, state corporate laws generally do not require that you make additional capital contributions to the business.

There are several factors the partners will want to consider before taking the step to dissolve the business. First, in order to dissolve a business amicably, there often needs to be at least a 51 percent vote of the owners. If there are two owners and they disagree about what to do, the sole recourse is to bring a dissolution action in the state courts -- which can be time consuming and expensive.

Second, if the partners are fighting over additional contributions, there could be serious and legitimate questions about the viability of the business which need to be faced squarely.

Threatening dissolution is a rather drastic move. Perhaps it's time to evaluate whether, temperamentally, the partners really should stay in business together. It might be time to discuss a buyout and go your separate ways.

Related: Prenuptial Planning for Business Partners
Related: What to Do When Your Partnership Sours

Nina L. Kaufman, Esq. is an award-winning New York City attorney, edutainer and author. Under her Ask The Business Lawyer brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and LexAppeal weekly ezine. She also writes the Making It Legal blog.

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