When a business partner stops putting in the work, money or decision-making support they agreed to provide, the problem can quickly affect the entire business. The first step is not necessarily to force the partner out. Start by reviewing the partnership agreement and documenting what has changed. The right response may depend on the agreement, the type of partnership and the partner’s specific obligations.
Start with the partnership agreement
The partnership agreement should be the starting point. It may explain each partner’s responsibilities, required capital contributions, management rights and procedures for resolving disputes. Pennsylvania law generally allows partners to establish many of the rules that govern their partnership through their agreement.
Keep records of missed contributions, unfinished responsibilities, important decisions the partner refused to make and attempts to resolve the problem. Emails, financial records and meeting notes can help establish what happened. A clear record makes the next step easier.
What options may be available?
The appropriate response depends on the circumstances. A partnership agreement may provide a process for resolving a partner dispute or addressing a partner’s failure to meet their obligations.
In some situations, the partners may negotiate a separation or buyout. State law also provides rules for buying out the interest of a partner who has dissociated when the partnership continues rather than dissolves.
If the relationship has broken down to the point that the business cannot continue, judicial dissolution may be another possibility. Pennsylvania law allows a partner to ask a court to dissolve a partnership when specific statutory grounds exist. A partner’s failure to contribute does not automatically require dissolution. The facts and governing agreement matter. The available options depend on how serious the dispute has become.
When should you take action?
A partner who stops contributing does not necessarily mean the business must close. But ignoring the problem can make it harder to protect the business and establish what each partner has done or failed to do.
Review the partnership agreement, preserve relevant records and consider whether negotiation, mediation or another dispute-resolution process could resolve the issue. If those efforts fail, the available legal remedies may depend on the partnership’s structure and the nature of the dispute. Taking action early can help prevent a business disagreement from becoming a larger financial dispute.