Should I Dissolve My Partnership?
Find out what your options are if you decide to break up a business partnership.
Most of the e-mails I get for this column are pretty straightforward. Some, though, come straight out of the daytime soap operas, positively oozing with bile and vitriol. Here's a good one:
"I'm the co-founder/CEO of a seminar production company. I started a limited liability company with my partner two years ago. Unfortunately, the partnership is no longer working out. During the past year, we've had some challenges in regards to 'control' and the image of the business we want to acquire. The problem, I believe, stems from the fact that I was too generous and agreed to a 50/50 partnership from the beginning. My partner has taken advantage of that and has forgotten that it was me who invited her in as a partner. I'm always struggling with her in regards to decision-making and the order of business.
"She's manipulated situations in which she gained access of the business in her possession. For example, the business was registered at her home address, the bank book ended up in her possession because she located a bank near her home, the telephone is in her home, and the post office that we have a box registered in is near her home. She's always looking to impress others, wanting to be seen in public, and letting people know she's president of a company. However, she has not been effective as president. Her letter writing skills have demonstrated only high school level. Her communications with our clients have led to confusion and ruined business relationships.
"I've decided I want to dissolve the company. Is there any way I can dissolve the company and keep the name? I feel this idea has been mine and I don't want my dreams dying because of my partner's lack of performance and inabilities."
Boy, the bloom has really gone off the rose in this relationship, hasn't it? Playing devil's advocate, though, I have some tough questions for you:
- How well did you know this person before you made her your 50 percent partner?
- Who made her president of your company?
- Who allowed her to put the business address, bank books, etc. in her name?
- When her poor communication skills cost your LLC business and customers, what did you say to her?
Since there are only two of you, the answers should be obvious.
Now I'm not saying you're at fault here (your partner sounds like one egotistical bird) but when partnerships go bad, it's usually because of a failure to communicate, and it takes two to create a communication problem. I sense that you haven't been nearly as assertive as a 50 percent partner has every right to be. In the interest of being professional, or just nice, you've allowed this person to walk all over you. With only a 50 percent interest in the LLC, she can't do anything--I mean, anything--without your approval, and you have to let her know in no uncertain terms that she is to do nothing with this business unless the two of you do it together.
If that doesn't work, you'll have to consider dissolving the LLC and going your separate ways. Most states have a procedure where if an LLC is "deadlocked" (meaning the partners can't agree on anything so nothing is getting done), you can petition a state court to dissolve the LLC, and the court will determine who gets which LLC assets, such as the name. You should talk to an attorney and find out how much time and money that will take--court proceedings are never quick, easy or inexpensive, even if one party is clearly in the right. And there's no assurance you'll win the suit. In a dissolution proceeding, the court may go out of its way to ensure that the LLC assets are split equally, and you may not come away with the assets you really need to stay in business.
Short of dissolving the LLC, you can always make an offer to buy your partner's interest in the LLC. If she agrees, you get to keep the name, although she'll probably want the right to compete with you and there isn't much you can do about that at this point. Or, if the name really isn't all that important, you can offer to sell your interest in the LLC to her for a small sum, say $1, strike out in business on your own, and leave her to run the business into the ground as her poor management skills become obvious to the LLC's customers.
The key question is: Who do your customers think is better positioned to continue providing services to them? If your customers agree you're the one who makes this business happen and your customers look to you as their primary contact within the LLC, then you shouldn't worry that your partner will steal business from you after you've parted company.
If, however, the customers view your partner as the driving force behind this business and they perceive you as being merely "in her shadow," then breaking up would actually be to your disadvantage. This business may have been your idea in the beginning, but if she has taken your idea and made it successful, the customers will follow her, not you, once you part company. If this is the case, maybe the best thing at this point is to swallow your pride and let her be the "star of the show," knowing that you're getting 50 percent of the profits from her successful efforts in producing and marketing these seminars.
Cliff Ennico is a syndicated columnist, author and host of the PBS television series MoneyHunt. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. Copyright 2005 Clifford R. Ennico. Distributed by Creators Syndicate Inc.
Cliff Ennico is a syndicated columnist and author of several books on small business, including Small Business Survival Guide and The eBay Business Answer Book. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.