Should I Dissolve My Partnership? Find out what your options are if you decide to break up a business partnership.
Opinions expressed by Entrepreneur contributors are their own.
Most of the e-mails I get for this column are prettystraightforward. Some, though, come straight out of the daytimesoap operas, positively oozing with bile and vitriol. Here's agood one:
"I'm the co-founder/CEO of a seminar productioncompany. I started a limited liability company with my partner twoyears 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 generousand agreed to a 50/50 partnership from the beginning. My partnerhas taken advantage of that and has forgotten that it was me whoinvited her in as a partner. I'm always struggling with her inregards to decision-making and the order of business.
"She's manipulated situations in which she gainedaccess of the business in her possession. For example, the businesswas registered at her home address, the bank book ended up in herpossession because she located a bank near her home, the telephoneis in her home, and the post office that we have a box registeredin is near her home. She's always looking to impress others,wanting to be seen in public, and letting people know she'spresident of a company. However, she has not been effective aspresident. Her letter writing skills have demonstrated only highschool level. Her communications with our clients have led toconfusion and ruined business relationships.
"I've decided I want to dissolve the company. Is thereany way I can dissolve the company and keep the name? I feel thisidea has been mine and I don't want my dreams dying because ofmy partner's lack of performance and inabilities."
Boy, the bloom has really gone off the rose in thisrelationship, 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 50percent 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 andcustomers, what did you say to her?
Since there are only two of you, the answers should beobvious.
Now I'm not saying you're at fault here (your partnersounds like one egotistical bird) but when partnerships go bad,it's usually because of a failure to communicate, and it takestwo to create a communication problem. I sense that you haven'tbeen nearly as assertive as a 50 percent partner has every right tobe. In the interest of being professional, or just nice, you'veallowed this person to walk all over you. With only a 50 percentinterest in the LLC, she can't do anything--I mean,anything--without your approval, and you have to let her know in nouncertain terms that she is to do nothing with this business unlessthe two of you do it together.
If that doesn't work, you'll have to consider dissolvingthe LLC and going your separate ways. Most states have a procedurewhere if an LLC is "deadlocked" (meaning the partnerscan't agree on anything so nothing is getting done), you canpetition a state court to dissolve the LLC, and the court willdetermine who gets which LLC assets, such as the name. You shouldtalk to an attorney and find out how much time and money that willtake--court proceedings are never quick, easy or inexpensive, evenif one party is clearly in the right. And there's no assuranceyou'll win the suit. In a dissolution proceeding, the court maygo 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 stayin business.
Short of dissolving the LLC, you can always make an offer to buyyour partner's interest in the LLC. If she agrees, you get tokeep the name, although she'll probably want the right tocompete with you and there isn't much you can do about that atthis 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 smallsum, say $1, strike out in business on your own, and leave her torun the business into the ground as her poor management skillsbecome obvious to the LLC's customers.
The key question is: Who do your customers think is betterpositioned to continue providing services to them? If yourcustomers agree you're the one who makes this business happenand your customers look to you as their primary contact within theLLC, then you shouldn't worry that your partner will stealbusiness from you after you've parted company.
If, however, the customers view your partner as the drivingforce behind this business and they perceive you as being merely"in her shadow," then breaking up would actually be toyour disadvantage. This business may have been your idea in thebeginning, but if she has taken your idea and made it successful,the customers will follow her, not you, once you part company. Ifthis is the case, maybe the best thing at this point is to swallowyour pride and let her be the "star of the show," knowingthat you're getting 50 percent of the profits from hersuccessful efforts in producing and marketing these seminars.
Cliff Ennico is a syndicated columnist, author and host ofthe PBS television series MoneyHunt. This column is nosubstitute for legal, tax or financial advice, which can befurnished only by a qualified professional licensed in your state.Copyright 2005 Clifford R. Ennico. Distributed by Creators SyndicateInc.