During the course of a business partnership, it’s not at all uncommon for one partner to leave to pursue other opportunities. However, leaving a partnership is not as simple as putting in two weeks’ notice and leaving on your last day, never to return. Rather, the terms under which one partner can leave a partnership are dictated by the original agreement.
A partnership agreement is a complex legal document that includes a variety of details related to the partnership, from the names of the partners to their obligations and contributions. In addition, it’s expected to include stipulations related to the departure of a partner, such as any distributions to which he or she might be entitled or, conversely, anything he or she might owe the remaining partners.
In general, upon exiting the partnership, a partner should be entitled to an amount equal to their fair share of the business, provided their exit doesn’t violate the terms of the partnership agreement in some way. Violating the agreement may leave the exiting partner liable for compensating the other partners.
General versus limited partnerships
The process for exiting a partnership may depend largely on whether the partnership is a general or a limited partnership, and if the partner in question is a general or a limited partner. General partners, for the most part, can exit a partnership at a time of their choosing, provided they give written notice, whereas limited partners typically must give significant notice (often six months in advance), unless the partnership agreement stipulates otherwise.
It’s important to remember that the departure of a partner must be reflected through the amendment of the written partnership agreement. In other words, the partnership agreement needs to reflect the actual makeup of the partnership. This doesn’t just make good business sense—it can also prevent the business from incurring fines and penalties resulting from any inaccuracy.
Finally, the effect of a partner’s departure, depending on the jurisdiction and the partnership agreement itself, may be that the partnership automatically dissolves. Whether such a clause appears in the partnership agreement is definitely something to discuss with an attorney.
While thinking about leaving a partnership may not be something you’re eager to consider when you’re still in the process of formalizing the partnership, it nevertheless makes sense to take this possibility into account when drawing up the partnership agreement. To discuss the particulars of your partnership agreement, either in the drafting stages or when a partner is preparing to exit the business, you may benefit from the input of a knowledgeable business attorney who can help you understand the law.
BoltNagi is a widely respected and well-established business law firm serving clients throughout the U.S. Virgin Islands.