When you start a business with partners, you don’t always plan out how to end the relationship ahead of time. Yet, many end up involved in professional networks they would prefer not to be a part of. Depending upon the type of business relationship, there are a number of ways to sever ties and, where possible, to avoid litigation in the process.
The most basic type of business relationship is called a partnership. Any association of two or more persons carrying on as co-owners of a business for profit is a partnership under California law. By default, a partnership is considered a General Partnership (GP) unless specific formation documents are filed with the state that create a different form of partnership, such as a Limited Partnership (LP) or Limited Liability Partnership (LLP).
If your partnership agreement contains a provision regarding dissolution, you will be required to follow the terms of that provision when ending the partnership. If your partnership agreement does not have a provision regarding dissolution, or if your business runs without any kind of formal partnership agreement, you will need to negotiate how to break up the business with your partners. Conflict can arise in either circumstance, and litigation may be necessary where former partners hold irreconcilable positions.
Dissolving a partnership does not necessarily mean the business has to end, and other partners may be able to continue operating the business after one partner leaves.
If you and your business partner conducted business through a corporation, you can terminate your business relationship either by dissolution of the company itself, or by one partner leaving the business. Corporations represent a more formal type of business entity, and adherence to the articles of incorporation, corporate bylaws, and California law is necessary to ensure the dissolution or separation is done correctly.
If you and your business partners cannot agree on whether to end your business relationship, how to end your business relationship, or how the business relationship was ended, it may be necessary to file a lawsuit. The termination of a business relationship can often give rise to causes of action for Breach of Contract, Breach of Fiduciary Duty, or violations of California statutory law. If you think litigation is a necessary step in the termination of your business relationship, be sure to contact an attorney immediately to avoid losing any rights to relevant statutes of limitations.