Professional partnerships: How to call it quits

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The best way to start a partnership is with the understanding that it may not last forever, and that’s okay. In fact, it’s normal. 

The demise of a business partnership is similar to the end of a marriage. Participants often dance around the decision to dissolve the relationship because to call it quits is to admit defeat. And no-one wants that.

A better way to look at a business partnership is to assume from day one that it’s far more likely to break up than continue indefinitely. So prospective partners should start their relationship by planning what to do when the mutual attraction starts to sour.

Roland Hanekroot, who runs New Perspectives Business Coaching, uses the analogy of a pair of cogs that engage, enmesh, move on and disengage, to describe the partnerships life-cycle.

Disengagement is the predictable outcome of the process, as partners’ common goals, needs and interests start to change.

“It’s actually okay for partnerships to come together and then dissolve,” says Hanekroot. “It’s the natural state of things.”

The other lesson is to prepare for the inevitable by setting up mechanisms from the get-go that encourage conversations about the little things, before they become too hot to handle. 

Hanekroot calls it “checking in on tetchiness”.

“If you’re starting to look for opportunities not to spend time in the same place together, it’s a good time to ask each other: ‘If we were like this before the partnership, would we start it now?’”

Name the elephant

Not all partnerships are destined to fold within a few years. Hanekroot says partnerships in professional services firms tend to work well longer.

“Because most partners run their own mini-business inside a larger partnership, it doesn’t have the same effect if your circumstances or priorities change.”

However, the odds of a course correction for any partnership are improved if you can “name the elephant in the room” while it’s still a manageable size.

Hanekroot recommends putting a yearly weekend away in the diary “to try and convince each other what you want to do with the partnership in the coming year”.

That’s also a good time to refresh any documentation around shared inventory or investments, which can become very complicated with partnerships that have been going for years.

“You might have bought a building together, lots of equipment or have joint liabilities with leases and employee entitlements,” says Hanekroot.

“Keep things as simple as possible, making financial and commercial arrangements with the view that they can be easily dissolved.”

Steps to a dissolution

Just like every marriage is different, so too is every professional partnership. As such how they are dissolved will differ from business to business.

However there are several steps you need to follow in order to conclude a professional partnership:

  1. Notice in writing - If a partnership has been established for an indefinite period, partners can resign at any time in the form of written notice to the other partners.
  2. Observe relevant legislation - If you have a partnership agreement, the terms of that agreement will inform its dissolution, keeping in mind the applicable state laws.
  3. Consult legal advice - All partners should seek independent legal advice to assist them through the dissolution process.
  4. Pay off debts - Even though the partnership is ending, you are still legally required to pay your debts. An accountant could help with this and also with any outstanding tax liabilities your business might have.
  5. Deregister the company - If the dissolution of the partnership also means the business has ended you need to deregister your company with ASIC.

For ASIC to accept your deregistration, the following requirements need to be fulfilled: all members of the company agree to deregister; the company is no longer conducting business; the company’s assets are worth less than $1000; the company has no outstanding liabilities (including debts); the company isn’t involved in any legal action, and all fees and penalties have been paid to ASIC1.

Purposeful partnerships

Often when partnerships break up, so does a friendship.

Depending on how long and how intense the partnership has been, participants will go through different stages of grief as they come to terms with the break up. And there may be lasting financial entanglements.

Business coaches (and lawyers) can assist in setting up mechanisms to prevent or minimise those worst-case scenarios, but it shouldn’t put you off the partnership experience.

Hanekroot advises the uninitiated to not go into a full partnership.

“Go into partnership on particular projects or for a particular purpose,” he says.

“That keeps the partnership separate from the individuals, which is a healthier, sustainable structure.”

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Important: This article has been prepared without taking account of the objectives, financial or taxation situation or needs of any particular individual. Before acting on the information, you should consider its appropriateness to your circumstances and if necessary, seek appropriate professional advice. Any information used in this article is for illustrative purposes only. Roland Hanekroot is not a member of the Commonwealth Bank of Australia Group of Companies (the Group) and the content or any view expressed by Roland Hanekroot does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. CBA, nor members of the Group accept any liability for losses or damage arising from any reliance on external parties their products, services and material. Past performance is no guarantee of future performance.