Jerry J. Goldstein

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Is a partner buyout or a dissolution the better option?

On Behalf of | Mar 29, 2024 | Contract Disputes

The realization that a partnership is not functioning properly can be a long time coming. Business partners often overlook minor issues in part because they hope to preserve the working relationship and the organization that they started together.

When incompetence, non-performance or other issues become too egregious, it may no longer be possible to try to work with a partner who does not conform to someone’s expectations. There are typically two main options available to a business owner frustrated by the performance or lack thereof on the part of a partner. They can buy out their partner to become the sole owner of the business, or they can dissolve the company so that they no longer have any formal business relationship with their partner. Which option is usually better for those experiencing a frustrating situation involving a business partner?

Different circumstances require different solutions

The risks involved in a partnership dispute largely dictate what solutions people use to resolve their conflicts. For example, perhaps the business now has an unsustainable amount of debt and a negative reputation because of a partner’s conduct. The partner frustrated by the circumstances might have an uphill battle should they attempt to continue the struggling business instead of end the company by dissolving it.

However, if the business has proven successful, then buying out a business partner might be the best option. Offering a reasonable amount of compensation based on a partner’s contributions to the company could allow the other partner to continue developing the brand without the challenges of a frustrating partnership.

Factors including the current state of the company and whether a partner aspires to continue operating in the same industry or not may influence whether a buyout or dissolution is the better solution given the circumstances. In cases involving liability or a struggling company, dissolution and a new business plan might be the best option. In scenarios involving a frustrating partner but an otherwise successful concept, a buyout might be the better choice.

Evaluating every option may benefit those struggling with a frustrating partnership arrangement or a dysfunctional business. Those who plan carefully instead of rushing to take action can minimize the setbacks they experience because of a failed partnership.