Advice on How to Leave a Business Partnership

Law Blog

While everyone enters into businesses with the intention of the business being a success, sometimes a business partnership comes to a natural end. Here is some advice on getting the cleanest split when it's time to part ways.

Start at the start

Ideally when you are setting up the business, you should obtain some legal advice on setting up the partnership. You can build into your partnership agreement sunset clauses (on how to end the partnership), as well as clauses detailing the process if one of the partners decides to leave the business.

There is often a staggered process involved to allow the leaving partner's share to be bought by the remaining partner/s, or sold to a suitable party and a handover/training period if their share is on sold.

Obtain legal advice

If you are in a partnership where there is no built in clause for dissolving the partnership, you should all seek independent legal advice to determine the best path forward. Mediation is often a sensible steps in resolving any difficulties before you get into court proceedings, both on a cost basis and to retain as cordial as possible relationship between all parties.

Legal advice can help advise on your rights, as well as ongoing obligations/liabilities with regard to the partnership. Liabilities will usually continue past the end of the partnership, particularly in the case of medical or environmental liabilities. In a business partnership each party has 'joint and several legal liability', which means they can be individually pursued for any of the debts of the partnership.

Obtain financial advice

If your business partnership has been in place for some time you will need to obtain tax advice on the position of your company, as well as the tax implications of any settlement to buy the leaving partner out. If you have outstanding lending facilities with any financial institution you will need to contact them to let them know the partnership is undergoing changes as this may change their credit rating of your company. 

An independent business evaluator can go through the statements of your company, as well as any physical assets to determine the worth of the company. If this is under dispute both parties may like to organise separate evaluations, which can be taken into mediation and resolved into a settlement.

By getting proper financial and legal advise when leaving a business partnership you can understand your ongoing liabilities to the business. Importantly it can also help you to maintain your professional reputation and the businesses relationships you have formed. Contact resources such as Rae & Partners for more information.


4 March 2015

Marriage doesn't have to be a life sentence

No one gets married planning to get divorced, but by the time I see them it's pretty obvious why they are getting divorced. When a marriage is beyond repair I'm there to fight for my clients right's under family and property law and to get them the best deal I can possibly negotiate. Even if you feel like your case is messy or complicated, I can guarantee in my time as a lawyer I have seen and heard worse things! This site has a collection of useful articles and links on developments and case law in the Family Court of Australia.