What to Do When My Business Partner Pushed Me Out
April 14, 2023
So you’ve formed a business partnership. And now you’ve been forced out. What do you do next?
For all the right legal reasons and protections for all involved, an ironclad partnership agreement in writing is essential. At first, everyone is on the same page, but down the line, it's not uncommon for people to disagree or go separate ways. And if your business partner has pushed you out, you have the right to explore your legal options for resolving the situation.
If you’re a partner in a business in or around Nashville, Tennessee, or anywhere in Rutherford County, and your partners are trying to expel you, contact the business law attorney at Brazil Clark, PLLC. Brazil Clark has the experience necessary to examine the circumstances and any partnership agreement in place, and advise you of your best path forward.
Defining a Business Partnership
A partnership should not be rushed into. You and your family or associates may have a brilliant idea for a business venture, but you need to get the parameters established for how things are going to operate before you open the doors, go online, or do whatever it is your business is focused on. That’s why a partnership agreement is so essential.
A partnership agreement should cover not only the purpose and focus of the entity, but also include the entry and exit of partners, dispute resolution (mediation, arbitration?), each partner’s role, capital contributions, profit and loss distribution, death or disability of a partner, tax management, and dissolution of the partnership, among many topics.
Reasons Partners May Be Pushed Out
You can look at a business partnership like a marriage. Everything may start off on sweet notes, but as time goes on and challenging events occur and people change, the marriage may fall apart. The same can happen in business. Everything can start off on a positive tone, but perhaps one partner suddenly develops a different vision for the company. The others don’t agree. The dispute and disagreements soon mar the smooth functioning and focus of the enterprise. The other partners decide to push the dissenting partner out.
Another scenario could be that one partner is engaging in an illegal activity, or enriching himself or herself at the expense of the overall partnership through a loan taken out in the company’s name or by “cooking the books.” Perhaps one partner has a conflict of interest by engaging in a competing business. Of course, if the business is sinking and must dissolve, then all partners will literally be “pushed out” as the partnership winds down.
Here again, it comes back to the essentialism of clear and enforceable contracts. If it comes time to sever ties with one partner, the other partners may vote to remove that person, but it must be done according to the standards in the original partnership agreement. If it’s a “handshake” partnership, then matters get a little murkier, but the Tennessee Code and its Revised Uniform Partnership Act do establish some standards.
The Tennessee Code states that the “only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care….” But it then limits these duties to certain actions, such as avoiding “grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law,” among others on a positive note. However, it also states that a “partner does not violate a duty or obligation under this act or under the partnership agreement merely because the partner's conduct furthers the partner's own interest.”
The code also states that a “partnership may maintain an action against a partner for a breach of the partnership agreement, or for the violation of a duty to the partnership, causing harm to the partnership.”
What to Do if You’re Being Pushed Out
If your partners want you out, your initial option obviously is to negotiate. If there is a written agreement, there should be standards for voting a partner out, including how that person’s share will be remunerated. Reread the agreement and understand your rights before consenting to what’s being offered or taking further legal action.
Of course, it’s in your best interest to get an attorney’s help as well. This is especially important if there is no written agreement and you stand to lose your investment in the business by being forced out. The Tennessee Code also comes into focus here as it says that a “partner may maintain an action against the partnership or another partner for legal or equitable relief.”
Fighting for Your Rights
If you as a partner feel you are being forced out, reach out immediately to the business legal team at Brazil Clark, PLLC. Brazil Clark is dedicated to helping clients overcome tough and unexpected challenges, and will work hard to protect your rights and seek the most positive outcome possible. Brazil Clark, PLLC proudly serves clients in Nashville, Tennessee, and throughout Rutherford County and Middle Tennessee.