Changes in business structure are expected in today’s marketplace. In some cases, a company may add or remove a business partner. This requires a few key steps to ensure a smooth transition.
The following is what you need to know about removing or adding a business partner.
The partnership agreement
If you’re looking to dissolve a partnership and you have an existing partnership agreement, it is recommended to review your existing partnership agreement and the obligations of that agreement with your partner or partners before proceeding to make changes.
A partnership agreement is generally established upon the formation of the partnership. This agreement outlines many of the details related to the partnership including management responsibilities, decision-making processes, and the resolution of conflicts.
Many agreements also include a strategy for executing a partnership dissolution.
Business partnership changes can impact the legal status of your business and may require you to obtain a new business number. It is recommended that you seek a legal opinion from a solicitor.
Questions to consider when changing your partnership
Consider your local laws related to the removal or addition of a business partner. Online resources can provide you with the forms that must be completed and the time required to process them.
How will a change in partnership affect your existing liabilities and debts? If a partner is being removed, who will be responsible for outstanding debts? When a partnership is dissolved, no party can subsequently enter into any agreement or transaction on behalf of the business partnership.
It’s also important to determine the value of your business when adding or removing a business partner. You can hire a third party to perform a valuation of your company so that you have the necessary information prior to making changes to your partnership.
The percentage ownership of each partner will determine the assumption of any liabilities or assets after changes are made.
Existing loan agreements, leases, or contracts should be reviewed to ensure that a partnership dissolution or addition doesn’t negatively impact each partner.
Any appreciation in value of property owned by the business must be considered along with payments made by partners. In some cases, a business may not have an existing partnership agreement. This can make the process more complicated and require all partners to work out the terms of any changes.
The use of an intermediary can resolve any conflicts or disagreements while protecting the company’s assets and the interests of each partner.
Finally, your customers and vendors must be notified regarding any changes in partnerships.
Other factors such as business permits, licenses, and registrations must be updated to reflect the new or dissolved partnership.
Removing or adding a business partner can seem like a complex process. We provide the resources and guidance that help businesses like yours make these and other important transitions without disrupting your daily operations.
Laura Harvey is an entrepreneur herself as the owner of Ontario Business Central Inc. Her passion has always been about supporting the entrepreneurial spirit and advancement within Canada.
Laura authors in-depth blogs for Ontario Business Central assisting entrepreneurs and business owners to start, manage and grow their businesses. She has almost 30 years of expertise as a corporate specialist and 25 years of being an entrepreneur. Laura has the unique position of supporting a community that she also belongs to. She walks the walk right along with you.
You can find Laura on Linkedin and Twitter.