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What happens when a business partnership breaks up?

Business partnerships are like marriages. They are made up of people: people who are different; people who have different needs; people who have different working styles; people who have different life goals. If you are a partner in a Florida business, you may have the uneasy feeling that all is not “right” in your business. Maybe you cannot put your finger on exactly what is wrong, but the excitement, enthusiasm and thrill that you and your partner(s) had when you first started your business seem to have dissipated over time. You no longer greet each business day as a marvelous opportunity to gain new customers, produce more product, and earn more revenue. Now there are days when you would just as soon stay home, and you fear that your partner(s) may feel exactly the same way.

Entrepreneur magazine reports that partnerships can be 20-30 percent more likely to break up than marriages. When they do, they often make national and/or international headlines. Witness the infamous split-up between Facebook co-founders Mark Zuckerberg and Eduardo Saverin. Or the equally high-profile split-up of Microsoft co-founders Bill Gates and Paul Allen. And who can ever forget the shockwaves that went around the world when Apple fired its CEO and founder Steve Jobs?

Preparing for an eventual break-up

More important than a prenuptial agreement can be for couples contemplating marriage, a good partnership agreement is absolutely crucial for people contemplating going into business together. A well-drafted partnership agreement can cover whatever the partners want to cover, but always should include the following provisions:

  • Ownership percentages
  • Division of profit and loss
  • Decision-making responsibilities
  • Buy-out provisions on the death or withdrawal of a partner

It is this last provision that ensures that, in the event a partner dies or wishes to exit the partnership, the business continues and the transition takes place as smoothly as possible.

If you and your partner(s) have a partnership agreement, it sets forth the procedures that everyone must follow during a break-up, making it easier and less stressful. If you do not have one, then all of these decisions and agreements must be worked out at a time when no one is in the best mental or emotional shape to make them. Getting help and guidance from a knowledgeable business law attorney and/or business and tax advisor becomes your best option. This is general information only and is not intended to provide legal advice.

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