How to Fire a Business Partner Who Owns 51% of the Company

A partnership is a risky business endeavor because partners can fail to meet their obligations to the organization, which can cause relationships to sour. Someone with 51 percent ownership of company assets is considered a majority owner. Any other partner in the business is considered a minority owner because he owns less than half of the business. The rights of a 49 percent shareholder include firing a majority partner through litigation. Another option to terminate a business partnership with a majority partner is to negotiate a buyout. Business owners should understand the rules involved in terminating a business partnership to protect their business interests.

Partner Buyout 101

A primary way to terminate a business arrangement with a majority partner is to negotiate a buyout of the partner’s business interest. According to Marshall Jones, the easiest way to negotiate a buyout is to have a properly written buy-sell agreement. The partners of a business should create the buy-sell agreement before officially starting the business, but partners may establish the agreement anytime before the buyout occurs. A buy-sell agreement is a written contract that defines the terms of buying out a business partner and taking over his ownership interest. The agreement should include information regarding what is considered a fair price for buying out the partner.

Buy-Sell Agreement Basics

Creating a buy-sell agreement before officially starting the business is challenging because it is difficult to predict the future value of the business. Although determining the value is difficult, agreeing upon a buyout price is essential to a buy-sell agreement. Some common ways to determine a price include agreeing on a fixed price and including it in the agreement, basing the price on the book value of the company’s assets or basing the price on the past profits of the business. The buyout agreement should include the names of individuals possessing the authority to buy out a partner and the conditions that can trigger a buyout.

Lawsuits as a Solution

Firing a majority partner without a buy-sell agreement may require you to file a lawsuit. A general partnership agreement should include the business responsibilities of the partners. According to FindLaw, if the majority partner is not fulfilling his duties according to the agreement, you can file a lawsuit seeking to remove the majority partner from the business. Some common reasons to file a lawsuit against a partner include a breach of contract, breach of fiduciary duty and conflict of interest. The partner filing the lawsuit bears the burden of proving the majority partner did not perform in the best interest of the business.

Business Dissolution Facts

If you fail to buy out the majority partner or remove the partner through litigation, you can attempt to dissolve the business by selling the assets and dividing the profits. The courts can assist you in dissolving your business if the partner refuses the buyout. When the courts force the dissolution of a business, the assets of the business are sold and all liabilities are paid. The money that remains is split between you and your business partner. A business attorney can help you seek a resolution from the courts and provide protection from any unscrupulous activity by your partner.