Can a Partner Withdraw From a Business Without Dissolving the Business?
May 9, 2022
It’s not unusual for a business partnership to end. People move on or retire; that’s a part of life. When the leaving partner moves on, and the other partner(s) need to figure out how to deal with the new reality, they may be left with questions on how to proceed. Questions can arise: “Should we (or I) continue operations or dissolve?”; “If we continue, how do we buy out that partner’s interest?”; “What if he or she ran up debts that we’re now responsible for?” An experienced business litigation attorney can guide you to these answers.
The first factor to consider is what provisions were made (if any) in the partnership agreement. It’s important to understand what was in place in the event one partner decides enough is enough, for whatever reason. This should provide the mechanism for moving on and continuing if that’s the choice of the remaining partner(s) or dissolving if that is the final decision.
On top of this, Minnesota has adopted the Uniform Partnership Act (UPA), which deals directly with situations when one partner decides to leave the business. The UPA allows for a partnership to continue operating for 90 days after a partner decides to leave, but it applies only to general partnerships and Limited Liability Partnerships (LLPs), not Limited Partnerships (LPs). The 90-day window gives the remaining partner or partners enough time to decide on what to do.
If you or your business partner has decided to leave your shared business in Minneapolis, Minnesota, contact the Engel Professional Association. We have more than 20 years of experience in business law and litigation. We can meet with you, discuss the specifics, and advise you of your best options moving forward.
We also proudly serve clients in St. Paul and other cities across Minnesota, including Mankato, Maple Grove, St. Cloud, and Woodbury.
Common Reasons for Partners to Leave
Partners may decide to opt out for a variety of reasons. They may feel it’s time to spend more time with their family or move on to a new endeavor. They may also disagree with the direction of the company and decide their input isn't heard or utilized. They may not like the financial conditions of the business, as competition has left the profit margin threadbare. They may even tire of their own managerial or operational responsibilities and want a long-term breather.
How the UPA Affects Partnerships
Minnesota has adopted the Uniform Partnership Act (UPA), which applies to general partnerships and LLPs, as mentioned above. Minnesota statutes address that partners are allowed to leave at any time by will–rightfully or wrongfully. However, the dissociation may be considered wrongful if it breaches any provision of the partnership agreement.
Also, the remaining partner(s) are then given three months (90 days) to decide on the actions they want to take, either to continue operations or to dissolve.
It’s important to note that the UPA is meant to supplement the partnership agreement signed by the partners – not replace it. Relations among partners should adhere to the partnership agreement. However, unless the partnership agreement addresses an issue differently than the UPA, the UPA likely has the final say. There is a lot to consider in understanding partnership agreements and their relationship with the UPA, so it’s important to have a business litigation attorney to help clarify these issues.
Deciding to Continue or Dissolve
The decision to continue operations or dissolve is left to the remaining partners. Depending on the partnership agreement, this may require a majority vote if there is more than one partner remaining.
In either case, the departing partner’s interest and share in the business will have to be accounted for. The remaining partner or partners may have to buy out the interest of the departee in order to continue, or alternately (if the agreement provides), find a new partner to fund the buyout and take the other’s place.
If dissolution is chosen, then once creditors and obligations are met, all partners would need to be recompensed for their share and interest, if funds exist.
As for any debts run up by the partner who is leaving, in most cases those debts – if they were for the operation of the partnership – now belong to the partnership and the remaining partners. Exceptions exist if the partner acted outside the scope of their authority or acted in bad faith.
Legal Guidance You Can Trust
When it comes to partnerships, the key factor is creating an ironclad partnership agreement from the beginning, one which addresses all possible contingencies and eventualities, including the departure of a partner.
The Engel Professional Association can certainly review or help you draft a solid, comprehensive partnership agreement, and we also stand ready to help if, down the road, you do run into a situation like a partner’s opting out.
We proudly serve clients in and around Minneapolis and St. Paul, Minnesota, and all neighboring communities. Contact us immediately if an issue such as a partner withdrawal is creating questions and challenges for your partnership.