When business partnerships sour, the document outlines several steps partners should take: 1. Evaluate whether the issues can be resolved and the partnership salvaged through open communication and compromise. 2. If irreconcilable, determine if one partner will buy out the other or if the business will be sold to a third party. 3. Hire independent legal and financial experts to formally dissolve the partnership and fairly value each partner's stake to avoid disputes.

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GROWTH STRATEGIES
What to Do When Your Partnership Sours
When there's no more middle ground, a strong partnership agreement can save you the hassles of an expensive
legal battle.
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Toddi Gutner
March 11, 2010 4 min read
Brought to you by Business on Main
Even in the best of circumstances, business partnerships can be fraught with con ict. To handle the
twists and turns, smart co-owners put a well-drafted partnership agreement in place to act as a
road map. Without one, lack of guidance in the event of a dispute can result in a free-for-all for
partners, says Jonathan Levitt, a principal with Outside GC LLC, a team of former senior in-house
lawyers who act as "on-demand" in-house counsel for clients.
For partners who don't have an agreement, or even those who do, there are a few things they
should consider in order to best protect themselves when con ict arises.
First, business partners need to evaluate whether they can mend fences and settle their differences.
Dif cult issues surface in all partnerships, and they can create stress in the relationship, "but if you
work through these issues, you usually have a stronger partnership," says Steven Thayer, an
attorney with Handler Thayer LLP in Chicago.
It's important to gure out what's at the root of the friction. Ask, "What is occurring within the
partnership that is causing you to make a decision to [want to] sell or liquidate?" says Terry Mackin,
managing director at Generational Equity, merger and acquisition advisor for small businesses. It
can come down to rifts, family dynamics or other issues. "How are those things affecting the
business?" says Mackin.
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Business issues such as not making enough money, having too much debt or realizing your business
model doesn't work are situations that may require you to adapt and change your business plan to
make it work, says Thayer. Of course, fundamental issues that are hard to move past--lying,
cheating, stealing or other illegal activity, for example--can be deal breakers and a legitimate basis
to terminate the relationship.
Whether con icts are resolved to make the partnership work is a business decision based in part on
each partner's risk/reward tolerance level. "Each partner should regularly assess the risks and
rewards associated with their business [.] to make sure they are in check," says Thayer.
To that end, ongoing communication and a periodic review of your partnership (especially the
agreement, if you have one) is essential. Just as in any relationship, partnerships grow old and co-
owners need to reassess how decisions are made, who makes what decisions, etc., says Kurt D.
Olender, a corporate attorney in Manhattan.
What do you do if you're unable to resolve your con icts? At this point, business partners need to
determine whether or not one partner buys out the other or both sell out to a third party. In the
case of a partner buyout, the two important questions to ask are "Who has the most passion for the
business, and who has an immediate cash need that requires them to cash out of the business?"
says Steve Nielsen, CEO of PartnerUp, an online small-business networking community. As one
would expect, both partners need to agree on the next course of action. In some cases, reaching an
agreement may require a good business attorney to act as a sort of "corporate therapist."
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Whatever the decision, make sure you hire a good business attorney to help with the dissolution of
the partnership. There is too much at stake to use your friend's uncle or some other attorney who is
not an expert in business law. Finally, "It is extremely critical that both parties either have their
own independent valuations or that they agree on an independent business-valuation expert to
determine the value of the business, " says Nielsen.
Most issues, serious or not, can be resolved at the onset through good communication and effective
negotiation skills. "Before you resort to the worst case, try working things out by talking," says
Nielsen.
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