Published on April 27, 2022
Starting a new business is never easy. This can prove even more difficult when you start your business in a bad business partnership. Most partnership agreements are unsuccessful fail, and 80% of business partnerships fail.
Sometimes the lines between your personal life, family members, and partnership agreements get blurred. This can be seen all the time in business relationships between spouses and families. Many issues can contribute to why a business gets off on the wrong foot and takes a turn for the worse. A bad business partnership arrangement will threaten the survival of your business partnership.
One of the best remedies for addressing the issues that crop up in a bad business partnership is to be proactive. Another remedy could be to work with a trusted professional with experience in helping you or your partner decide what can be your best move for a successful business partnership..
If you’re having poor communication with your business partner and considering going your separate ways, Texas business law professionals suggest working with an experienced business partnership attorney.
How to get out of a bad business partnership?
It can be difficult to understand the consequences of having a poor business partner. Many business owners choose to find a good business partner to reduce their workload, receive support from someone on the same page, or for an influx of new ideas and creative energy. This is sometimes referred to as “synergy.”
However, managing what’s going on in a bad business can be difficult when everyone’s personal lives and personal emotions negatively affect the business. A good partner can be hard to find, and a bad partnership will lead to bad business decisions.
Getting rid of a bad business partner and finding the best solution for your business will depend on your ability to recognize a bad business partnership. Knowing the signs of a bad business partner and what to look for in a bad business partner will help you recognize when it’s time to end your legally binding agreement and move on.
Characteristics of a Bad Business Partnership
Some telltale signs can help you recognize if you’re in a bad business partnership. Consider speaking with a business partnership attorney if you experience the following:
- Avoids responsibility
- Constant tardiness
- Different understanding of the business’ vision and mission
- Inconsistent effort
- Lacking clarity about the business and their role
- Lack of respect shown to clients or staff
- Negativity based focus
- No enthusiasm for the business and their role
- Obsessed with competitors
- Poor communication
- Refusing to compromise
- Tardiness and lack of commitment to timeliness
All of the above can be signs that your partnership relationship and agreement needs work. Disagreements may occur if one partner sees the big picture and the other does not. Business law professionals can help businesses to avoid these types of conflicts when starting a new venture.
Is a business partnership a bad idea?
Partnerships can be wildly successful when they are properly handled. It’s a win-win when partners understand one another and have a strong business contract in place. Business ownership of two or more people is the easiest and least costly. Partnerships can be advantageous orand dangerous depending on how you handle the business partner relationship. affairs.
Why do business partnerships fail?
Partnerships fail for different reasons because each business is unique. Many business partnerships fail due to misunderstandings about the goals and direction of the business. A business’ vision and operating systems are pivotal to its reasons for existence. If partners don’t share the same values and goals, the business is primed for failure.
Bad Business Partnerships
So, let’s say you’ve come up with a business idea, and found some like-minded individuals to partner with. After putting it all together, you realize that your responsibilities are more than others. Or you’re not able to continue handling the business’s daily operations. Sometimes partnerships turn sour simply because you cannot see eye to eye.
The average startup breaks up at a 70% rate. When a partnership fails, lls, ownership and control are threatened. Some disputes happen because a partner is unwilling to take an active role in the venture. Disputes also arise when a partner has ulterior motives. Some partners just won’t have the necessary skill set to make the business a success.
You’ll have to decide what’s best for your business in the long run. Being proactive and speaking with a business law professional can be an important first step.
How do I get out of a bad business partnership?
Partnerships dissolve when one partner leaves. That partner must repay all debts, divide assets and profits, and fulfill any remaining business responsibilities. The following precautionary steps can help each business partner ensure that they leave the business on the best footing possible:
Creating a well-rounded business contract or Partnership Agreement is important for preparing for the worst and best times ahead. Understanding the strengths and weaknesses of yourself and your business partner may prevent either of you from becoming a bad business partner. Understanding one another can help you to put each other in a position to succeed.
Adding clauses that allow for the restructuring of the ownership or buyout of another partner at a fair market value is imperative when unfixable clashes occur. Preplanning prenups and separation clauses can encourage everyone to follow the business agreement should disputes arise. This can prevent issues from happening before they do.
Hard feelings and negative energy usually promulgate a bad business partner agreement. That’s why all both partners need to give themselves time to think so that they can approach negotiations. Making a rash decision or ending an agreement between business partners angrily can lead to more lawsuits and wasted money.
Understanding the costs versus the benefits of doing business can be equally important when ending an agreement with a business partner. Having a business law specialist at your side to explain all the important points of your partnership agreements can prove very useful when making a deal.
Share the Costs of Dissolving the Business
Properly divvying up the legal costs when the bills come can also help prevent bad business breakups. Sharing the costs evenly or as specified by the ownership agreement can help you avoid unnecessary disputes.
Work with a Dallas Business Lawyer
If one partner states they’d like to dissolve the company, this is a perfect opportunity to contact a business lawyer. Striking a deal without a lawyer present could lead to you losing out on valuable intellectual property.
All of the time, effort, and energy you put into the business could be for naught. Hiring an attorney can help you and your business partner handle matters civilly, with your attorney acting as a mediator.
A partnership agreement is legally binding contract that because it outlines the management structure of a partnership and the rights, duties, ownership interests, and profit shares of the members. Although it’s not legally required, it’s highly advisable by business law professionals. Having a partnership agreement will help to avoid conflicts.
The partnership agreement will outline who owns which portion of the enterprise, how profits and losses will be split, and each partner’s roles and duties. The partnership agreement can outline how to adjudicate disputes and contingencies if one of the partners dies.
After speaking with your business partners, you can negotiate an agreement. Creating a legally binding agreement in detail about how both parties may terminate the business partnership is essential to protecting the business.
It should also include any other right each party cannot have. Your agreement should also specify what to do about trade secrets and competitors. If your agreement does not specify it, it’s imperative to make sure all of those terms are clear.
What can you do if your business partner is not working?
Business partnerships often break down, but it doesn’t have to get messy. Every business is exposed to some disputes. Business breakups can be even more costly when they’re not handled properly.
It’s easy to protect your business when things are going well. It’s just as important to know how to handle conflicts when they arise, and who you can turn to for professional assistance.
Steps are available to protect business owners. These steps can help partners avoid a complete collapse of the business venture. They could also work to legally protect the individual, their money, property, and business relationships.
Remember to seek legal help when settlement negotiations are not moving forward.
How to find a good business partner?
Finding a good business partner can be easy if you know what to look for. The business partner you choose will affect the money you bring in and your relationship with one another.
Whether you’re working with your friends, a family member, or some other partner or business party, it’s important to consider the following when looking for a good business partner relationship:
The more diverse your partner’s skill sets are, the more critical it can be for your business. When your business partner can take on different tasks within their separate skill sets and cover the business’s core competencies, it can relieve a lot of the pressure on the other partners.
When starting a partnership, all parties should have the same set of business and personal values. Aligning your values is mission-critical because when your business sends you challenges, you’ll need to lean on your business principles to overcome those challenges.
If one person doesn’t have the values, the partnership can break. Your core values should be discussed early on and understood, so you’ll be prepared with a plan to persevere when issues arise.
Looking for partners with experience, education, references, and, preferably, a personal brand website. When you connect with someone with these traits, you’ll have more time to focus on improving the business from within. As a bonus, partnering with another expert in the industry can boost brand awareness.
Working with business partners who share the same passion as you for the company you’re building can make things easier for both of you. A partner that lacks passion for the company may have trouble putting their best foot forward.
When you and your partner(s) make sure the organizational documents are fully prepared, and everyone signs the Company Agreement, you’ll help protect each other. Entrepreneurs often focus on marketing, product development, and labor rather than making sure that all legal “I’s” are dotted and “T’s” are crossed before the work begins.
Avoiding Partnership Disputes
A detailed Partnership or LLC Company Agreement is the most important task you can complete and may be the difference between an amicable split or a legal dispute. Business owners should carefully document any strategic goals they may have. Documenting your goals can lead to more success.
Business owners need to make sure all yearly filings are made, and you are current on payments to the State regulating agency. If payments aren’t made, the company charter can be revoked. Keeping your payments up to date will protect your company and help insulate you from personal liability.
Disputes between business partners and LLC members can arise for many reasons. The best practice is to consider the worst-case scenario and attempt to limit your “downside” risks. Business breakups stem from several issues, ranging from disagreement over the company’s strategic direction, how money is spent or distributed, or because you simply want a partner out.
An early warning sign that a business relationship is deteriorating may be excluded from key meetings or decisions. Your Company Agreement should protect you from such exclusions, and the Texas Business Organization Code also provides guidelines and remedies of which all business owners should be aware.
Ending a Toxic Business Partnership
When disputes arise with your business partner, being proactive is intelligent. Being proactive can protect your interest. Business Partnership professionals suggest finding a seasoned attorney experienced with business break-ups to represent you.
When a business divorce ends in litigation, it is imperative to understand your rights and to locate and secure evidence that supports you and highlights the errors of your bad business partner.
Litigation in your business divorces depends on the terms of your business agreements and the evidence. If you feel that things are breaking down with your business partner, try to locate and secure as much documentation as possible.
Evidence against a bad business partner agreement can include:
- Phone calls
- Text messages
- Customer bids
- Witness testimony
During the trial, your business divorce attorneys will likely want to call witnesses such as current or past employees or past partners who may no longer have a stake in the company and can therefore provide impartial testimony.
Business divorces are won and lost based on the Company or Partnership Agreement provisions. The financial documentation and the other agreements and communications between the partners or LLC members will also play a role in determining who gains control of what aspects of the business.
Can I just walk away from a business partnership?
A partnership dissolves when one party or a partner departs. When businesses dissolve, the parties will be required to pay off all debts and split assets and profits. They also have to fulfill their remaining company responsibilities.
It can be difficult to decide between leaving the business or fighting for control. If you leave the company, you may lose your right to the company’s success and failures. Sometimes leaving a business or trying to sell your stake in the business helps each party move forward.
Can I force my business partner to sell?
Without the legal backing, it’s hard to force partners out of your process. However, with the right partnership or company agreement, you may be able to invoke a “buy-sell” clause which requires the partner to either sell his interest to you or buy you out. sell their share of the company or have them pay for the remaining work they’ve left undone. The entire process generally hinges on what’s in the initial partnership agreement or LLC Company Agreement. deal you came up with together.
Getting a Business Divorce
The last step will be to take your separate route. In cases of disagreement with your partner, you may be forced to alter your business status. The business may be sold to a buyer when it’s the only viable option.
That’s why business law professionals advise against creating partnerships that can harm the business. Sometimes it’s as easy as going your separate ways, and other times business partners end up tied in months or years of litigation.
A bad business partner can haunt your business. You don’t have to deal with your bad business partner alone though. Please contact an attorney that specializes in business breakups like Wade McClure at Mayer LLP.
Best Way to Deal with Bad Business Partnerships
Getting the best deal from your business partners involves some meticulous preparations. Just because you’ve been involved with a bad business partner doesn’t mean your company has to continue to suffer. Hiring a business breakup attorney could be the difference between protecting your business and preventing your bad business partner from continuing to ruin your business.
If neither business partner wants to budge, there is a way for both parties to still jointly manage own the business. One way to allow them to remain part-owner while you run the business’s daily operations is with a royalty agreement.
A royalty agreement allows business creators to earn royalties for every sale made. This way, your business partner can profit from what was originally theirs, and you can continue running the business the way you want to.
If you and your business partner can’t agree, a third party may be the best solution. Instead of letting either partner run the company, you can delegate to your employees.
Many successful companies are not run by the owners, but by employees acting as the CEO. Partners that aren’t personally invested in the company as much as the owners can provide a rational perspective and help avoid conflicts that would arise from just one partner running the company. This is similar to larger companies that operate with an outside board of directors. Many larger companies have a board of directors.
A Qualified Business Attorney Can Help
The right attorney can help you find the best solution for your business dissolution. Your experienced business breakup lawyer can help you recognize a failing partnership, take steps to fix it, or help you litigate the business divorce in court.