I want to end my business partnership, what can I do?

When a business partnership goes south, it may be time to remove the partner from your business … but there are some key things to consider before you make your move, writes business lawyer and litigation specialist, Alex Martin.

I want to get my business partner out, but I don’t know where to start …

All business owners have problems with their business partners from time to time. Greed, jealousy, miscommunication, apathy, and personal problems can breed discontent in any long-term business relationship. And discontent is poison to a business partnership.

The antidote to partnership problems is robust process, quality documents, and open communication. Sounds easy, but it is not. Communication skills are in short supply, especially among middle-aged men (like me). Many of the business owners I know are petrified of telling their business partners how they feel.

“People with clenched fists cannot shake hands.” (Indira Gandhi)

Where do you stand?

If you are in a tough spot with a business partner, the first thing you need to do is work out where you stand. If you raise concerns with the partner and the discussion goes south, you need a plan B (and probably a plan C as well).

The rights of the partner will depend on the structure of the business and the documents you have in place. Is the partner a shareholder, director or investor? Are they all three? What does the shareholder agreement, trust deed or company constitution say about voting rights and removing partners?

The process

If there is a specific process to vote on an issue or expel a partner in the business documents, you need to know what it is. And if you use it, you need to follow it exactly.

If there is no process to remove a business partner in the business documents, the rules of the game will be governed by the provisions of the Corporations Act, Partnership Act and the legal principles of equity and fiduciary duty.

Partners are legally required to put the interests of the business ahead of their own interests.

Your circumstances

You need to carefully consider how the general obligations of partners apply to your circumstances.

Partners who are also directors of the business will have very broad rights to manage the business as they see fit, but are also bound by specific directors’ duties to look after the interest of shareholders as a whole. On the other hand, silent investors have very little power beyond the right to vote at meetings or inspect documents.

If your partner is taking money, using business assets or damaging the reputation of the business, you may have a legal claim against them. You may be able to issue a legal proceeding to settle a partnership dispute, seeking that the Court force the partner to accept a buyout or expel them from the business.

In cases of serious IP theft or dodgy bank transactions, you may also be entitled to an injunction forcing the partner to immediately stop the conduct.

Minority owners

You should be particularly careful if the partner is a minority owner in the business. Don’t exclude a minority partner from management or stop paying them dividends unless you have no other choice.

You don’t want to end up being sued for minority shareholder oppression by that partner.

Final thoughts

It is always best to settle any disagreements by negotiation. If that is not possible, look to the processes in your governance documents. Use a formal vote to settle the issue. Remember, you can’t settle the dispute if you don’t know your rights – knowledge is power here.

If all else fails, the Court has strong powers to stop a business partner doing the wrong thing. While litigation is unpleasant, it will usually give you the leverage you need to settle the dispute once and for all.

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