If you’ve spent years building a successful enterprise only to find that the partnership is no longer optimal, it can be a relief to learn that dissolving your company is not your only option. In fact, there are ways to continue operating and preserving value while renegotiating the venture.
A qualified business attorney can advise you on the many alternatives to closing up shop. This guidance, that will get you through an uncomfortable breakup, can save the time and expense of starting all over again.
Understanding Dissociation, Dissolution, and Your Options in Wisconsin
Chapter 178 of Wisconsin law, the Revised Uniform Partnership Act (RUPA), covers business partnerships, providing a structured legal framework for business partnerships, particularly those that are struggling. It provides remedies including exit rights.
Under the state partnership law, a partner may be dissociated, or removed from the business while the remaining partner or partners continue the business. Reasons for dissociation can include:
- Expulsion under the partnership agreement
- Judicial expulsion for breach, misconduct, or impracticability
- Voluntary withdrawal
However, even dissociated partners have legal rights, under this statute, to access specific company records, books, and other critical material.
Other ways to approach this critical decision include:
- Partner Buyout
Determine the departing partner’s share of the liquidation value of the business and calculate a buyout amount. There are many ways to make this happen, including through a lump sum payment, installments, or deferred payments, depending upon the business’s cash flow. - Mediation or Arbitration
Alternative dispute resolution mechanisms may be part of your partnership agreement. Going to a mediator avoids the cost of litigation and can preserve the business. - Amend the Rules. Assuming your business has a partnership agreement, consider amending it rather than dissolving. Can the difficult partner become a silent partner?
- Judicial Dissociation
If continuing the business is not an option due to one partner’s behavior, state statute provides for a judicial dissociation. A partner may apply for this option if there’s misconduct among the partners or if economic objectives are frustrated. The court may order removal of a partner without forcing dissolution, allowing the business to carry on. - Statutory Liability and Indemnification
State law calls for partners to provide one another indemnification and reimbursement for expenses incurred on the business’s behalf. Dissociated partners may secure reimbursements, indemnification, or a fair settlement as part of their exit.
It’s tempting to throw in the towel and walk away when a partnership no longer works. Yet there’s a lot at stake that can be resolved if you put some work into it. Consider:
- Retain value: A full dissolution can destroy goodwill, scare off clients, or force a fire sale. Buyouts or mediated exits often allow the business to retain its value.
- Protection despite dissociation: Dissociated partners retain statutory access to partnership records to ensure fairness in negotiating buyouts.
- Flexible arrangements: The procedures for dissociation, buyouts, and dispute resolution are enshrined in the partnership agreement. Wis. Stat. § 178.0105 allows partners broad flexibility to define their own exit terms, so long as they remain within statutory limits.
- Preemptive planning: Businesses run on a predictable schedule of starting up and closing up. Exit planning should be woven into the partnership agreement from the beginning, rather than waiting for a climactic moment. Planning for buyouts can avert a stressful conclusion.
Consulting with a business law expert can save time and effort. Start by examining your partnership agreement closely for buyout mechanisms, mediation clauses, and other potential actions that take precedence over default state rules. Then, consider the following:
- Can the remaining partners afford a buyout? Where will financing come from?
- Consult an expert for legal and valuation advice. A third-party appraiser, accountant, or lawyer skilled in partnership law can guide you through the process.
- Mediation can preserve relationships and business value, effectively de-escalating a stressful breakup.
Expert Advice Can Save Time and Stress
Learn more about the ways that state law Chapter 178 provides options to business partnerships that can provide a path forward. Make Kerkman and Dunn your business law partner. Acting now can save funds, reduce stress, and potentially preserve your partnership.
