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Ely, Counselor at Law
Category: Legal
Satisfied Customers: 102160
Experience:  Private practice with focus on family, criminal, PI, consumer protection, and business consultation.
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What are the legal ramifications of breaking up a business

Customer Question

What are the legal ramifications of breaking up a business partnership that doesn't have an official partnership agreement?
Submitted: 3 years ago.
Category: Legal
Expert:  Ely replied 3 years ago.
Hello friend. My name is Ely, and welcome to JustAnswer. Please note: (1) this is general information only, not legal advice, and, (2) there may be a slight delay between your follow ups and my replies.

Can you please tell me more about the situation? What kind of business is it? Is the break up mutual, or not? Does one partner want the business? Is the business incorporated? Etc.

This is not an answer, but an Information Request. I need this information to answer your question. Please reply, so I can answer your question. Thank you in advance.
Customer: replied 3 years ago.

The business is a Limited Liability Corporation. I want to keep the business. It is not mutual; after bring on this business partner, I have come to the conclusion that we are going in entirely different directions. Basically, for the past 2 years, I've done the majority of the work, but he still claims to want an equal amount of ownership. I've also brought in all of the company's money and I have all of the business contacts. I believe that I am better off continuing the business alone. The business is Education Support services: workshops, training and technology services.

Expert:  Ely replied 3 years ago.
Thank you, M. Do you feel that he is not performing his part of the agreement in any way? Significantly?
Customer: replied 3 years ago.

Absolutely and I'm past the point of salvaging anything. Again, there is not a partnership agreement.

Customer: replied 3 years ago.

I want the business as an LLC but I don't want him as a business partner

Expert:  Ely replied 3 years ago.
Thank you.

Just a few more clarifications.

You state that this is an LLC:

1) Any stock, or not?
2) Who is on the board of directors? Only you, or both of you? What positions?
Customer: replied 3 years ago.

No stock

No board of directors. I am right now the only active operator for the most part. When we started we both were under the idea of bootstrapping and making this work.

Expert:  Ely replied 3 years ago.

So who is named on the LLC in any capacity - president, owner, etc. I am guessing... you?
Customer: replied 3 years ago.

we're both listed as partners

Expert:  Ely replied 3 years ago.
Okay, thank you.

Even though you do not have a formal partnership agreement, an informal partnership may be assumed then. And if so, then the very same partnership laws apply.

Partners owe each other certain duties in a partnership. These include duty of loyalty, fiduciary duty, full disclosure, and acting in the capacity of the business. For an overview, see here.

If one feels that the other partner is no longer acting in the best interest of the business, is slacking, and/or is otherwise harming the business, one can initiate a lawsuit to break up the partnership.

If so, then it would be up to the Court to decide in the end as to what to do and if the claim is valid. If it is, the Judge may:

1) order the business sold and proceeds split;
2) order you to buy him out;
3) have him struck as a partner for little or no money for fraud, gross negligence, or another malicious action/inaction;
4) reduce his capacity to make decisions but have him retain earning rights; and/or
5) whatever else the Court feels is just and equitable.

Unfortunately, it is up to you to initiate this suit. Of course, the other party can simply agree to be bought out, but then, you'd have to come to an agreement in regards to the but-out price.

I hope this helps and clarifies. Good luck.

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