When starting or running a business in Texas, a partnership is often an effective strategy. People with different skill sets, financing, education and experience come together and become successful. However, there are times when a partner chooses to end the partnership.
There are also circumstances when the partner did something illegal. There are legal, personal and financial ramifications from a partner’s withdrawal and it is important to know the law to protect the business and a partner’s interests.
Why will a partner end a partnership?
A partner can end a partnership in several ways. Simply stating the desire to withdraw by a certain date is sufficient. There can also be a specific event such as the completion of a deal after which the partner will depart.
The partner can also be expelled based on the partnership agreement or if there is a majority-in-interest decision to expel the partner.
For the majority-interest expulsion, it could be due to illegal activities affecting operations continuing if the partner who is to be expelled stays on. There could be a security-based transfer of the partner’s interest.
There can be an expulsion within 90 days after notifying the partner that they will be expelled based on termination; it has been terminated on an involuntary basis; it lost its charter; or it can no longer conduct business due to certificate termination or revocation.
The expulsion due to judicial decree can happen if it determines that there was wrongful conduct that negatively impacted the business; there was a material breach of the agreement or a duty by which the partner was obligated to abide; or the partner took part in conduct that made it impractical to continue the partnership.
The partnership can also be terminated if the partner has declared bankruptcy; is completing an assignment to benefit a creditor; or agrees to have a trustee, receiver or liquidator of their property.
If the partner dies; appoints a guardian or general conservator; or the court decides that the person cannot perform their duties, the partnership will also be terminated.
For any partnership and business concerns, having legal advice is imperative
Texas business law covers all bases when a partner is withdrawing from a partnership whether they are doing so willingly or not. The reasons can be complex and there is often nuance to how it will be addressed.
The partnership agreement must be scrutinized for the benefit of the partners who are staying and those who are being removed. Having professional advice is key for all sides to be protected.