How to Exit Informal Business Partnership
June 4, 2015 1:39 PM   Subscribe

My business partner is not pulling his weight and has become maddening to deal with. We are not registered and have no written partnership agreement. I want to bow out gracefully and never look back... but I don't want it to bite me in the butt someday.

YANML. We've only had one paying client and the contract expires in December. He is the one directly dealing with the client and the money received monthly goes to his account. Three months in and I haven't received my share. At this point, it's a relatively small sum that I really don't care about ever getting it.

I want to let him know I want out. Is it as simple as that? My big fear is that I tell him I no longer want to be his business partner, I go my own way, and then a year later realize I owe money because of the money he received during the three months I was still a "business partner."

I would appreciate any advice on how to approach this. Thank you.
posted by anonymous to Work & Money (10 answers total)
It doesn't sound like you were ever business partners.
posted by Busmick at 1:42 PM on June 4, 2015 [2 favorites]

My big fear is that I tell him I no longer want to be his business partner, I go my own way, and then a year later realize I owe money because of the money he received during the three months I was still a "business partner."

But you don't have a partnership. He's getting the funds from the sole client, so basically he's just a contractor or whatever. Nothing to do with you.
posted by DarlingBri at 1:46 PM on June 4, 2015

Do you have anything tying you to this person financially? Is there a contract with the client? You say you're not registered and have no partnership agreement - if there is no business entity, no dba, no joint checking account, you can pretty much just walk away. If you do have financial ties, ensure they are severed when you part ways.
posted by bedhead at 1:51 PM on June 4, 2015

A smart thing to do would be to decide on a few outcomes that you consider OK, present them to the pseudo-partner, and say "Things aren't working out the way things are going right now. Which of the following is OK with you?"

One problem with walking away might be alienating the end client, if you ever want to do work for them in the future or if you're in an industry where word gets around quickly.

I can vaguely imagine other ways walking away might go wrong, but without more details it's hard to say.
posted by adamrice at 1:53 PM on June 4, 2015

Was your name EVER on ANY business document? Did you ever sign ANYTHING for the company, as a part of company or whatever?

If it never was, you can claimed to be an unpaid employee, not partner. And you'd have a good reason to claim so.

Better check ASAP.

If there never was, then you can simply say "good bye" and cut the guy off. What's he going to do? Sue you? Over what? A verbal promise? he ain't going to kick his own butt, because then he'd have to disclose how much he promised to split the proceeds with you, and obviously it was never delivered and he'd be forced to open his bank account and all that. He won't make any trouble... If your'e been accurate in describing the situation.
posted by kschang at 2:00 PM on June 4, 2015

Well, a partnership need not have a written agreement to be recognized at law, however, if your partner has received payment in a check endorsed to him personally and if he has deposited it in his personal bank account, then afaik, for him to claim that you owe taxes or whatever on that income would require him to provide you with a K-1 at the end of the year. If he hasn't had the energy to share the money, my guess is that he won't go to the trouble of a partnership tax return. I'd send him an email, though, just to be sure that you've got a dated record of termination of your oral agreement. This isn't legal advice. IAAL, IANYL. Etc. Also, I'm not a tax lawyer, and the biz orgs I deal with tend to be documented.
posted by janey47 at 2:01 PM on June 4, 2015

What's he going to do? Sue you?

(Possible) answer:

[he might] claim that you owe taxes or whatever on that income

Even though you don't have any paper trail getting into this mess, you should be careful to create a paper trail showing your exit. Otherwise, you may end up paying taxes on money he received, or on the receiving end of a lawsuit by somebody he did faulty work for, just because you happen to have more ability to pay damages than he does. Maybe you can get out of whatever the problem turns out to be, and maybe you can't, but it's guaranteed to cost you hassle and probably money to do it.

You should be able to get a "withdrawing from partnership" letter drafted by an actual lawyer for a couple hundred bucks, and IMHO that's cheap insurance against future hassles when you don't really know how things could go sideways.

Consider it "school of hard knocks" tuition on why you talk to a lawyer about business deals that you don't have previous experience getting into.
posted by spacewrench at 2:48 PM on June 4, 2015 [1 favorite]

In a consultation with a lawyer, you can also find out if there are any issues related to conducting a business without formal registration, and a lawyer likely can refer you to a tax preparer to help figure out the state and federal tax issues that may exist. Information about how to find an attorney, including free and low-cost legal resources, is available at the MeFi Wiki Get a lawyer page.
posted by Little Dawn at 9:35 PM on June 4, 2015

"... but I don't want it to bite me in the butt someday."

I realize you mostly mean you don't want your butt bitten financially (there's probably a better way for me to have phrased that), but you might also consider how to end the relationship on relatively good terms interpersonally to avoid other types of future-butt-biting.

I was in your exact position in 2008, and we ended the relationship amicably, mainly because I didn't tell him I thought he was borderline narcissistic personality disorder case.

Fast forward to now, and after going through some life changes himself, he's become a trusted, informal business friend. We solicit each others advice and send contacts each other's way all the time. And we actually like each other now.
posted by digitalprimate at 2:31 AM on June 5, 2015

Sorry, so as not to abuse the edit window, I should have added: the downside of a bad business breakup is that you might need him in the future, or you might wind up with mutual business acquaintances who will speak about you, etc.

Ending things as amicably as possible prevents damage to your network, now or in the future.
posted by digitalprimate at 2:33 AM on June 5, 2015

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