Imagine this scenario: your business partnership is off to a great start. You and your partner get along and work well together. Your vision is aligned and you’ve knocked a few business goals out of the park already. And then one of you falls ill, or your partner has to move away, or another company offers to buy you out. What do you do?
We all know what happens to best-laid plans. Sometimes reality doesn’t work out as imagined, no matter how strong your vision and will. Nobody goes into a business partnership expecting it to go badly – hopefully, you’re excited and optimistic about your venture.
While you can’t anticipate everything that could possibly go wrong, you can cover the most common contingencies with a little bit of planning. Thinking about worst-case scenarios isn’t pleasant but it can actually save your business partnership in case of any unexpected turns.
You can start planning for the unexpected in your business partnership agreement. But even if you don’t prepare for the unexpected ahead of time, you can successfully work through many of these situations with a partnership agreement modification.
Depending on how well you and your business partner communicate, you could move forward with a partnership modification through mediation with a neutral third party or negotiation where you and your partner are each represented by legal counsel.
Creating a strong foundation in your partnership agreement will help you weather any storms that come your way. It’s important to get a personalized approach to your partnership since no two businesses face the same issues and risks. This is why templates often don’t work. A business attorney can look out for you and help protect you from these curveballs.
Handling Critical Partnership Developments
A business partnership is first and foremost a human endeavor. Business partners often act as driving forces, pouring their passion, efforts, capital, and time into the venture.
So when a partner’s circumstances change, that can dramatically affect your business. A strong partnership agreement will act as a guide for how to handle these situations.
In the absence of guidance from your partnership agreement, you and your business partner can sit down to negotiate new terms for how to move forward. Partners must be in unanimous agreement when making changes to the terms of their partnership.
- If a business partner gets sick or moves away, they may not be able to contribute to your partnership the same way that they have up to that point. A managing partner may become unable to carry out the day-to-day management of business operations. You may have to find another business partner or step up your own efforts to keep up. If the partner had a lot of authority and decision-making power before, they may be better off playing a more minor role as a limited partner moving forward.
In many partnerships, profit distribution is based on each partner’s contribution to the venture. So when that contribution changes, you’ll want to change the way profits are divided as well.
- A business partner may pass away or decide to withdraw from the partnership for whatever reason. Your partnership agreement should outline the procedures you’ll take in these circumstances. How much notice does a partner have to give before voluntarily withdrawing from the partnership? Do the remaining partners get a right of first refusal to buy the withdrawing partner’s share of the company? Will the partnership dissolve if a partner leaves or passes away? If so, what will happen to the business and its assets?
Similar complications may arise when your business partner is another company. Planning ahead of time can save you a lot of grief in these situations.
- A business may run into production or supply chain issues. Nowadays the economy is more volatile than ever. What happens if a partner is unable to deliver on the terms of the partnership? Does the partnership dissolve? Can the partnership find another partner or supplier? What would this process look like?
- What happens if a business partner goes bankrupt? This will affect your joint assets and debts, especially if the partner is a general partner. It’s absolutely critical that you properly strategize the structure of your partnership in your initial agreement. If your partner’s assets get frozen, that could affect the operation of your business.
- What about bringing on new partners? You can plan ahead for when your business grows and expands by specifying how new partners would be onboarded in the future. After all, as your operation grows, it’s common to need greater resources.
Ideally, you and your business partners are on good enough terms to sit across from each other in a mediation or negotiation. But in some cases, communication between partners could break down. This could happen over time or after a single inciting incident.
If you’re unable to come to a unanimous agreement to amend your partnership, you may have to halt operations, dissolve the partnership, and litigate the division of assets and debts.
How to Handle Sales Offers for Your Partnership
A business partnership could be sold in full with the unanimous consent of all partners or in part, where a single partner sells only their share of the partnership.
Again, it helps to anticipate the sales process in your partnership agreement before any offers come in. By following your previously agreed-upon terms, you and your partners have a solid idea of what to expect. This can help the sales process go much more smoothly.
When presented with a sales offer for your business, you must usually meet with all the partners in order to vote on how to proceed. The rules around this process will change based on your partnership terms and which state laws apply. So a Pennsylvania business sale will operate under different rules compared to New Jersey or Delaware.
You will have to decide which assets will be sold and how debts will be handled in the sale. In addition, you will have to consult with a business advisor and appraiser to get an accurate idea of how much your operation is worth. Your business lawyer can help by referring you to the appropriate experts, negotiating for you, and protecting your interests in the sale.
Call the Philadelphia offices of Holmes Business Law now at 215-482-0285 or use our online contact form to get started on your partnership modification or sale.