How to Break Up Amicably With Your Business Partner
Going into business with someone is like entering a marriage: It may be a bed of roses at the start, but in truth, it takes a lot of work, effort and commitment—which is why many partnerships do not stand the test of time. The Beatles disbanded due to irreconcilable differences and ended up suing their business managers and each other. Similarly, Facebook founders Eduardo Saverin and Mark Zuckerberg’s relationship quickly went down in flames after Zuckerberg booted out Saverin, claiming that he had failed to set up the company, get funding and make a good business model.
These examples are hardly surprising. According to statistics, almost 70 per cent of business partnerships end up in failure, due to a lack of communication, misunderstandings, trust issues and conflicting interests. Furthermore, people are not discerning when it comes to finding the right business partner, and may team up with someone out of convenience or anyone who is willing to take on the role. Sometimes, out of the blue, cracks can surface after a good two-year run as well.
With Covid-19 hitting many companies hard, business owners are forced to improvise, adapt and innovate. In this process, it may be more apparent that you and your partner’s level of commitment and vision for the business are different. Fundamentally, if you don’t see eye to eye on what’s best for the company, a partnership is doomed to fail—even if you are friends. So, for those seeking to leave a (bad) partnership that is no longer workable, here are some steps you can take towards making a clean break.
Communicate clearly with your partner
Stop dragging your feet and schedule a time to have “the talk”. Before speaking to them, you need to be crystal clear about your terms and what you wish to salvage from the partnership. Do you want to sell your shares? Or buy your partner or partners out? Be sure to communicate only when you are in a calm state of mind. You will be in a better place to negotiate and make a proper judgement call when you separate your emotions from the situation. Don’t yield, even if the negotiations get tough. And give your partner time to consider your proposal and what their options are. The goal is to come to a consensus where the terms are acceptable to you.
Don’t drag on for too long
If the partnership is constantly fraught with tension and arguments, it is a clear sign that something is not working out. When it reaches a point where disputes are unresolvable and moving forward is no longer viable, consider pulling the plug early, instead of prolonging the unhappiness. Avoid spending unnecessary time on long-drawn debates on whether to keep the partnership. Closing down the company could be an alternative to ensure the separation doesn’t turn into a personal vendetta.
Get an external opinion
Having a third party during negotiations who has no stake in the business can mediate arguments that may arise and help both sides to gain greater objectivity. When searching for a third party, look for someone that both parties can trust. The person can be a trained business mediator or coach. Professionals like attorneys and financial representatives can also give judicious advice on how to approach a split.
Offer to buy out the minority partner
When figuring out how to sever a partnership, the controlling owner may decide to oust the non-controlling owner through a merger, share exchange or transaction that would compel the latter to relinquish his share. If there is a legal contract between you and your partner that requires a buyout upon terminating the non-controlling owner’s employment, then you may act accordingly. However, if your contract prohibits you from coercing a buyout, you could persuade your partner to leave by using the current economic crisis as bargaining leverage.
Consider having a royalty agreement
In a situation where neither partner wishes to relinquish control over the business, both can still own aspects of the enterprise with a royalty agreement. For example, if your partner created the product and you were in charge of operations, you can allow them to remain as the rightful owner (without a conflict of interest) while you continue running the business. This will allow the original creator to earn royalties from the sale of products, while you can operate the business without interference.
Evaluate the cost of your decision
Before you act on any exit strategy, be sure to revisit the contract to study the breakdown and how much belongs to you or your partner(s). If both of you have an equal stake in the company, consider the cost to buy your partner out at the current market price or at a higher value that they believe their shares to be worth. Should you wish to cash out, you can sell part of your company to get partial liquidity and keep the remaining portion to reap a bigger return.
Create a legally binding agreement for the separation
If you and your partner(s) have finally come to a consensus, it is important to draw up a formal legal document to minimise any discrepancies and to prevent future issues from occurring. Engage a lawyer to help you draw up the terms with details like ownership rights and what is prohibited after the agreement has been signed. This is a precautionary measure to help you safeguard your assets and prevent your partner from stealing your playbook to start their own business elsewhere.