Dinn, Hochman & Potter, LLC

Considerations for removing an ineffective partner

Ohio business owners may face a situation of a business partner who is not performing well. There are alternative actions that can be taken so that the non-functioning partner is not an impediment to the success or growth of the business. The available steps could be determined by the organizational structure of the company and any agreements that exist between the owners.

If the business is set up as a corporation, the majority of the owners can make decisions and take actions that do not require input or agreement from the under-performing owner. Partnerships and limited liability companies do not have this option. Conflict resolution, either among the owners or with impartial third-party assistance, may lead to a workable agreement among the owners.

An LLC's operating agreement, a corporation's bylaws or a partnership's partnership agreement ideally would contain in writing a method for dispute resolution and an exit strategy if it is best for the organization for an owner to leave. Arbitration and court action may be required to activate the terms of such documents. Business dissolution and reestablishment may be costly, but are also available for the owners to consider.

Because it is the responsibility of the people running the business to look after the best interests of the shareholders, the executives or board of directors may choose to take steps that would remove a non-performing partner from the picture. Due to constraints based on the type of organization and any pre-existing agreements in owners' contracts, an attorney may evaluate the framework within which the business owners must operate when deciding to work around or eliminate a difficult partner through business litigation.

Source: Houston Chronicle, "How to Deal With a Non-Performing Business Partner", Terry Masters, December 12, 2014

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