What rights and obligations do partners have in a failing small business?

Two people started a small business as equal partners, but now find they cannot work together due to ideological and personal differences. Their options are to sell outright, or one partners buys out the other. One partner has no money for a buyout, while the other has the cash, but is trying to force the other one out. What rights does the cash poor partner have? Can he just walk away?

Asked on June 30, 2012 under Business Law, New York


FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

Under partnership laws under all states in this country, each partner in the venture is responsible for all liabilities of the venture. As to a buy out if one partner in the venture by the other, typically the presumed written partnership agreement that ordinarily is in place would set forth the terms and conditions of a buy out and if there is no partnersip agreement then state statutes would apply as follows:

1. if the partners cannot agree on a buy out price, the court would order the business listed for sale and the net proceeds would be allocated with respect to the percentage of onwnership of the partners in the venture.

2. the partners agree to a buy out of the other one's interests in the venture preferably in writing pepared by a business attorney.

Rather than the one partner walk away, I suggest that he or she consult with a business attorney to structure a buy out of his or her interests where the acquiring partner would be responsible fo the bought out partner's liabilities with respect to the business.

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