Entering or exiting a business partnership or joint shareholding in a start up business can seem simple but create a complex relationship. When more than one party shares the responsibilities for a business, conflict can arise and escalate to the point where one or more of the parties want to exit the relationship. Unfortunately, when such conflict arises, what was once a thriving business relationship can become destructive and if the way out is not clear ultimately disastrous for the business.

Entering a Business Partnership

When two or more people decide to enter into a business partnership, the working relationship evolves. The best preparation is to have a contract drafted and signed by all parties which outlines their respective responsibilities, the policies and procedures governing the partnership, and the exit strategy in the event that the relationship breaks apart or just evolves to a new stage. How the process of entering a business partnership was managed usually lays the foundation for the exit process.

There are many advantages to entering a business partnership such as shared risk, skills and shared effort and financial investment. Unfortunately, there are also many potential disadvantages, such as conflict over control, liability, and division of tasks and workload.

Exiting a Business Partnership

The guidelines for exiting a business partnership are governed by several updated and amended Partnership Acts. In NSW, the Partnership Act 1892 is the set of legislation pertinent to exiting a business partnership. In addition, business partners in Australia may also need to consider the guidelines set forth by business authority organizations, such as Fair Trading in NSW. Most businesses are framed as corporations and come under the oversight of the Australian Securities and Investments Commission “ASIC”. The distinction will be important particularly if there is no partnership or shareholders agreement and the parties are in conflict.

Australia law provides several guidelines and circumstances under which a business partnership can be dissolved as a matter of law. These circumstances include:

  • The partnership has become illegal, such as in the event that one party is no longer legally able to own a business
  • The party or parties exiting the business provide formal written notice to the remaining party or parties
  • The partnership is dissolved under a court order
  • The partnership agreement has expired
  • One or more of the parties in a partnership file bankruptcy
  • One or more of the parties in a partnership become deceased

In addition to these circumstances, there are numerous reasons why business partnerships dissolve. There are also several strategies for successfully exiting a business partnership without permanently damaging the personal relationship between partners, or violating applicable laws. Some positive strategies for exiting a business partnership include:

  • Review the contract to determine if there are guidelines for exiting the partnership.
  • Make every attempt to be reasonable and to consider how exiting the partnership will affect the other parties involved.
  • Communicate with other partners to determine what the most amicable and equitable solution is to the dissolution.
  • Be honest about the reason for the exit, and be open to listening to the other partners involved.
  • Consider hiring professional advisors, such as financial experts, to help resolve any issues with the business that may arise out of the dissolving partnership. Financial accounts, taxes, loans, insurance, and personal guarantees are important considerations when dissolving a business partnership.
  • Hire lawyer who is experienced in contract law, business litigation, and partnerships.

Experience, Passion, and Dedication

At Owen Hodge Lawyers, we bring experience, passion, and dedication to every case. Dissolving a business partnership can be complex and emotionally charged. Business partners need legal guidance they can rely on in order to protect their personal interests and the best interests of the business. The skilled team at Owen Hodge Lawyers is ready and able to help you find the best exit strategy for your business partnership. Our team can help you avoid costly contract mistakes that could negatively influence your reputation and the livelihood of the business. Call us today at 1800 770 780 or contact us via email at ohl@owenhodge.com.au to schedule a consultation with our team of commercial lawyers. We look forward to assisting you.