Partnership Disputes: When One Partner Wants to Break Up, and the Other Doesn’t
While partnership disputes can involve numerous issues, in most cases, the partners will share a common goal of keeping the business intact and continuing to maximize its profitability. This common ground can prove crucial for resolving disputes amicably—and it can be a powerful motivator for reaching a compromise, even in highly contentious scenarios.
But things change when one partner wants to break up, and the other doesn’t. In this scenario, the partners’ interests are diametrically opposed. As a result, both partners will generally have less incentive to compromise, and each will need to work closely with an experienced Miami partnership dispute attorney to ensure they make informed decisions with their own personal best interests in mind.
Breaking Up a Partnership: Key Considerations for Finding a Path Forward
You’re facing a dispute with your partner. While you’ve been able to keep things together in the past, the writing is on the wall: It’s time to move on. What can (and should) you do in this scenario? Here are some key considerations:
Making Informed Decisions Starts with Reviewing Your Partnership Agreement
Whenever you face a partnership dispute, the first step is to review the relevant terms of your partnership agreement. Well-drafted, carefully negotiated partnership agreements will often provide clear guidance in this scenario, while agreements drafted from generic forms will often raise more questions than answers.
When reviewing your partnership agreement, focus on the terms regarding ownership, control, and dissolution. This includes (but is not limited to) any terms that address issues such as:
- Capital contributions and withdrawal or reimbursement rights
- Ownership of partnership property
- Voting rights regarding dissolution or disposition of the partnership
- Buyout rights or obligations
- Winding up the partnership
Importantly, while these terms (among others) may provide a roadmap for moving forward, partners can—and frequently do—agree to different terms during the breakup process. In the vast majority of cases, it will still be in both partners’ interests to avoid protracted and costly litigation. If the alternative to a compromise is spending years in court, settling may be a viable option—though reaching a settlement could take longer and be more contentious than in other scenarios.
That said, it will be important to examine the partnership agreement’s dispute-resolution provisions as well. Partnership agreements regularly include provisions requiring partners to mediate in good faith or to pursue arbitration rather than taking their claims to court. If your partnership agreement includes a mandatory mediation or arbitration clause (or both), this is a factor that you should take into account during your decision-making.
What if your partnership agreement doesn’t provide clear guidance? If your partnership agreement doesn’t provide a roadmap for navigating a breakup, then negotiating a settlement and pursuing formal dispute resolution proceedings will be the only two practical options. Without a foundation upon which to base your settlement negotiations, you will need to focus on finding leverage while taking into account pertinent provisions of Florida’s partnership laws (or the governing law specified in your partnership agreement).
Is a Buyout the Best Option Under the Circumstances?
In many cases, when one partner wants to break up and the other doesn’t, a buyout is the best option. Again, partnership agreements often include buyout provisions designed specifically to address and avoid conflicts in this scenario. But, even if your partnership agreement doesn’t specify the terms of a buyout in the event of irreconcilable differences, you and your partner may both get the most benefit out of finding a way for one of you to exit the business while the other continues to operate.
With that said, navigating a buyout may still involve resolving a variety of contentious issues, including:
- Which partner will buy out the other, and
- How the exiting partner’s interest will be valued.
If you and your partner agree on who should continue operating the business, then reaching an agreement may largely be a matter of negotiating a price. There are various methods for valuing partnership interests, and, in most circumstances, determining which method makes the most sense will require a thorough assessment of the specific circumstances.
Is Winding Down the Partnership the Only Viable Solution?
Of course, for a buyout to take place, one partner must have the financial resources to pay fair value for the other’s share of the business. If neither partner is financially able to buy out the other (and neither is willing to take on financing or seek new investors), then winding down the partnership could be the only viable solution. Before committing to winding down, however, it will typically be well worth considering all available options, as simply closing the business could result in substantial losses for both partners.
Is There an Amicable Solution to Save the Business?
While executing a buyout and winding down the partnership are two options for coming to terms when one partner wants to break up and the other doesn’t, these aren’t necessarily the only options available. Even in highly contentious scenarios, an amicable solution to save the business may still be possible. Typically, this will involve either:
- Finding a way to get past the partners’ differences for the benefit of the business, its employees, and its customers; or,
- Selling the entire partnership and distributing the proceeds in accordance with the terms of the partnership agreement.
Both of these require the ability to work together—and this may or may not be possible under the circumstances. But if the partners have any common ground, this common ground could serve as the foundation for a resolution that serves the best interests of both partners and the partnership going forward.
Schedule a Free and Confidential Consultation with a Miami Partnership Dispute Attorney at Edelboim Lieberman
If you are facing a partnership dispute in Florida, our attorneys can help you make informed and strategic decisions about your next steps. To schedule a free and confidential consultation with a Miami partnership dispute attorney at Edelboim Lieberman, please call 305-768-9909 or contact us online today.
