How to Leave a Partnership

A handshake agreement between partners can lead to legal problems later.
A handshake agreement between partners can lead to legal problems later. (Image: Jupiterimages/ Images)

A partnership between two or more people is a common way for small businesses to be structured. Less formal than a corporation, a partnership may have agreements in place as to how it may be dissolved if a partner chooses to leave. These steps must be followed if a partner leaves for any reason. If there are no prior agreements, any partner may leave at any time and dissolve the business. In the absence of prior arrangements, there are no controlling circumstances other than clearing up any fiscal responsibilities to all parties. Several actions can help mitigate against future legal and financial problems.

Write a letter clearly stating your desire and intent to dissolve the partnership. Give a firm date on which this will happen.

State any terms you consider acceptable, such as allowing your partner to buy your share of the business so that the business does not dissolve with the partnership.

Acknowledge any debts the company has and your understanding of your liability as a partner during the time the debts were occurred. Also note any loans or financial obligations the company has to you personally, the capital equipment and its value, and any profits and savings the company has.

State your understanding of a fair and equitable distribution of any monies after all debts and liabilities are paid.

Send the letter via certified or overnight mail so there is a documented record of it being received. Keep a copy for yourself.

Negotiate the terms with your partner so all parties are at least minimally satisfied and willing to agree to them.

Tips & Warnings

  • Check with your state's business laws to see if there are any specific rules you have to follow when dissolving a partnership.
  • If emotions or hard feelings interfere with negotiations, it might be better to engage lawyers for both sides.

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