When you are planning to enter a business partnership with another individual, you should draft a partnership agreement before anything else. This will help to be proactive and decrease business disputes down the road. Likewise, a business must also plan for what is sometimes referred to as a business divorce. In situations where a business partner is bought-out or control is transferred there is a certain degree of negotiation and litigation required to make sure each party is happy with the end result.
There are several reasons why a partner would choose to leave a business partnership. Our lives are ever changing. There is no telling when events could arise that might affect a partner and require them to either take a step back or leave the business altogether. Some reasons for departure include:
- Retirement
- Divorce
- Change of career
- Disability or incapacitation
When you enter a partnership with another individual, you should take steps to prepare for a departure. The biggest step: creating a separation agreement.
Create a Separation Agreement
A separation agreement is a document stating what will happen to the business if one of the partners has to step down from their position. This will protect the partner(s) involved as well as the state of the business as power is transferred. If business partners are already working under a partnership agreement, it can be used as an outline to write a separation agreement; in this case it can be as simple as a one page document referring to clauses in your partnership agreement. To create a separation agreement, you’ll need to gather all important documents dealing with financial records, account statements or business licenses to record how the business is being handled currently. Identify all parties involved and then organize the information based on who is responsible for each item. Finally, you need to include the reasoning behind the agreement and include a list of clauses that will cover the situations that would result in the partnership dissolving.
Notarize Separation Agreement
After creating a separation agreement, allow time for the partner(s) to read over the terms and then present it to an attorney for legal advice. The agreement must be signed in the presence of a notary by all parties and a copy of the signed agreement should be distributed to the partners for future referencing.
Separation agreements can be negotiated before the partnership is formed or upon exit of the partnership. However, leaving a partnership takes a lot of planning and communication between the partners, so it is best to work out the terms in advance. You should seek guidance from an experienced attorney when you are putting together the terms of a partnership as well as the separation agreement.
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Gaslowitz Frankel LLC is Georgia’s premier fiduciary litigation law firm. The firm has earned a reputation for excellence across Georgia and the Southeast in providing representation to individuals, executors, trustees, investors, shareholders, and financial institutions in complex fiduciary disputes involving wills, estates, trusts, guardianships, conservatorships, businesses, and securities.
