Small Business

Breaking Up Is Hard to Do


By Karen E. Klein Q: How can I dissolve a partnership when my partner will not cooperate? We have no written agreement, but we operate two dog-grooming shops and own property together. Do I have any legal rights to dissolve without her? We have been at odds for two years and I am getting desperate to find a way out. -- J.S., Los Angeles

A: Your situation is complicated because you not only have a joint business operating under an oral agreement, but you also own real property together. Let's address the partnership first, then discuss the property angle.

Under California's Revised Uniform Partnership Act (statutes vary from state to state), you have the right to compel a dissolution of the partnership either by showing legal grounds for a judicial dissolution or by voluntarily withdrawing from the partnership -- a process known as "dissociation." Under the latter course, the withdrawing partner no longer has a right to participate in the management of the partnership, says Jeffrey A. Unger, a Beverly Hills attorney (www.ungerlaw.com), and the partnership must purchase the dissociated partner's interest, or dissolve. The partnership act "also mandates the method by which the buy-out price is to be determined and the payment of interest on that amount," Unger says.

With no written partnership nor exit agreement (a document that spells out how partners can leave the business) your predicament is further complicated, since your understanding of the agreement may differ from what your partner takes it to mean. If that is the case, a court may have decide whose interpretation is correct. "The effect of an oral partnership...is that you are exposed to liability for what your partner does in the business," says Bill Capps, chairman of the corporate law department of the Los Angeles law firm of Jeffer, Mangels, Butler & Marmaro, www.jmbm.com. "So, if one of the solutions

is to split the stores, if you don't legally dissolve the partnership, you could be liable for the creditors of the other business."

LITIGATE OR MEDIATE? Moving on to the real property that you own with your partner: The solution will depend on whether or not the property is a partnership asset. If it is, the rules of dissolution and dissociation apply, Unger says. If it is not, and you are simply tenants-in-common, then you have the right to seek a partition of the property and ask a judge to order its sale. Both Capps and Unger suggest that you find attorney familiar with business and property law.

Another option might be to seek a compromise through mediation, which could avoid an ugly court battle and preserve the good will both of you have developed in your community, says Forrest Mosten, founder of the Sherman Oaks, Ca.-based Mosten Mediation Centers, (www.mostenmediation.com).

Mediation is also typically cheaper, quicker, and less stressful than a lawsuit. "Business partnerships are often like families, it's not just about

the money. People have deep commitments, dreams, and relationships that precede the partnership. Even if the business doesn't work, it doesn't mean that the relationship can't go on in a different form," he says. "But the best way to empty your company's bank accounts and ruin the relationship is to treat the partnership dissolution to an adversarial lawsuit." Good luck. Have a question about running your business? Ask our small-business experts. Send us an e-mail at smartanswers@businessweek.com, or write to Smart Answers, BW Online, 46th Floor, 1221 Avenue of the Americas, New York, NY 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.


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