Business partnerships, much like marriages, do not always work out. Sometimes, when they don’t work out, the split can be rough and partners can be just plain nasty to each other. This may necessitate one partner firing the other from the Limited Liability Company or Corporation. But, how? How do you fire your partner?
The comparison to a divorce between married people is the easiest analogy we can make. Most people are familiar with divorce and how important a prenuptial agreement can be. The same can be said for a partnership and how important an operating agreement or set of bylaws can be.
When you do not have a set of governing documents, it can be near impossible to fire a partner without legal litigation. After all, if you don’t have expectations in writing, how can you provide that someone isn’t living up to those expectations? Additionally, without something in writing, there is no process or procedure to follow.
A set of bylaws (for corporations), or an operating agreement (for limited liability companies), serves two primary purposes when it comes to firing a partner: what justifies grounds to fire a partner and what is the process for firing a partner.
What Justifies Grounds for Firing a Partner
Our legal practice focuses on preventative steps to help gym owners avoid litigation. Most of the law is reactive. In other words, the law doesn’t step in until there is a problem. However, legal documents like operating agreements, liability waivers, membership contracts, etc. are meant to prevent those problems. That’s because those legal documents set out expectations. When drafted correctly, these legal documents put all parties to the contract on notice of what to expect.
When it comes to firing a partner, the primary reason one partner may want to fire another is because someone isn’t meeting expectations. Using legal documents to set these expectations keeps the decision black and white. There aren’t any feelings involved. I don’t feel like you aren’t living up to your end of the deal. We have a written document that explains what it means. You are either doing what you are supposed to do, or you aren’t.
What is the Process
The second purpose of the operating agreement, or bylaws, is to layout the process to fire someone. What kind of notice do you have to give them? How many days do you have to wait? Do you have to buy back the partner’s shares in the business? If so, at what price? Do you have to pay it all at once? Or, maybe over time?
These are all questions that an intelligently written legal business document will answer. Once again, it is a black and white, step-by-step, here is what you do explanation.
When Should You Get One of These Documents?
Unfortunately, if you are ready to fire your partner, and you don’t have bylaws or an operating agreement, it is too late. Otherwise, if you aren’t there yet, there is no time like the present. The best time is when the partners are happy. Sure, it’s not fun to talk about what happens if it all turns south in the beginning when it is all happy to exciting. However, that’s the best time to do it. This is when the partners can be completely neutral and unemotional. In the law, we don’t like emotions and feelings. Those lead to litigation. We want a cold step-by-step process and list of expectations. Sounds boring, but it is the best way to avoid issues down the road.