If I want out of my business with my partner and we have no exiting contract, what are my options?

Get Legal Help Today

 Secured with SHA-256 Encryption

If I want out of my business with my partner and we have no exiting contract, what are my options?

I went into business about a year ago and I want out and my partner is saying no. What are my options and can I take the stuff that I purchased in my name as a loan to the business until it was able to purchase it’s own equipment and furniture?

Asked on January 6, 2012 under Business Law, Arizona

Answers:

Kenneth Avila / Kenneth Avila, Patent Attorney

Answered 9 years ago | Contributor

All too often people enter into business with each other without establishing, in advance, what is to happen when certain events occur.  It is so important to consult with an attorney when the business is forming to discuss situations such as this one.  Your attorney will know what events can lead to hardship between partners and can put into place an agreement on how to deal with these events.  Your story is an all too common occurrence.

 

Basically you will have to look at your leaving the business as a possible breach of contracts you may have between yourself and your partners.  Note that you may have “implied” contracts between yourself and your partners along with “express” contracts, both in writing and oral.  Implied contracts are contracts that are created from a party’s reasonable reliance on the other party’s words or actions.  Then you will have to look at the harm you will be causing your partner by breaching those contracts.  The more serious the harm the more your partner can sue to recover.

 

You only mentioned one possible contract in your fact pattern - “Can I take the stuff that I purchased in my name as a loan to the business until it was able to purchase it's own equipment and furniture?”  This seems to be a valid contract as you gave money to the venture in return for an interest in the venture.  Barring an agreement otherwise, money that is brought in by the partners determine their percent interest in the business.  It is not considered a loan.  For the equipment to have been a “loan” you will need to show the court that you and your partners agreed that your money was to be a loan that was to be repaid by the business and that your money was not an investment into the business.  If this is a “loan” then, according to the terms of the contract, have to wait until the business profits so as to pay you back.  If you take the equipment away then your partner can sue for damages or for an order from the court for you to return the equipment.  If this is an investment then you will have to wait until the business has profits.

 

You can ask your lender to replace your name with the name of your partner.  This is called a “Novation”.  However all three parties, you, your lender, and your partner, will have to agree to this change.

 

My advice would be to consult with an attorney and bring to the consultation all agreements, both implied and express, between you and your partner.  Then after the consultation talk with your partner and negotiate an exit strategy for you.  No one wants to be in business with a disinterested partner but on the other hand your breach should not cause your partner any undo hardship.


IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

Get Legal Help Today

Find the right lawyer for your legal issue.

 Secured with SHA-256 Encryption