The decision to split from a business partner is likely to be bittersweet or a welcome delight, subject to the circumstances. As joint owners of a business, the affairs of the company will need to be strategically assessed to determine the best route forward. While in some cases, a partnership split may not necessarily result in the closure of the company, most partners will choose to depart and subsequently shut up shop.
The prospects of a business following a partnership split can vary, Jon Munnery of UK Liquidators, a company liquidation expert, runs through the different avenues a business can take following a partnership split, such as a business sale or solvent liquidation.
What happens during a partnership split?
If a mutual decision is reached by two or more business partners to split, what does this mean for the business? The answer will likely be shaped by the mood of the relationship between business partners, and whether they wish to continue the legacy of the business.
If business partners split due to a disagreement, mediation or arbitration may provide a gateway to a peaceful settlement.
Mediation – A neutral party is introduced to facilitate conversation between partners and help them reach an agreement.
Arbitration – This is a legally binding procedure whereby an arbitrator will work to resolve the dispute and arrive at a solution outside of the courts.
If both partners agree to put an end to their involvement in the joint business, what options are available?
What happens to a business after a partnership split?
The make-or-break factor is whether the owners wish to continue operations, or if this is an opportune time for them to depart from the business or close it. The range of options available is vast, although the decision will likely be determined by the financial health of the business and the appetite of the owners to pursue a buyer or turn to company closure.
Business sale – If the business is a profitable entity with the potential for growth, it may likely attract interest from buyers. With the help of a business transfer agent, following the completion of a successful sale, both parties may choose to divide the profit and bring the chapter to a close. A business valuation can help determine if this route is financially efficient.
Solvent liquidation – If the business is cash or asset rich, a solvent liquidation in the form of a Members’ Voluntary Liquidation (MVL) is a route which makes way for a cost-efficient exit. If the business is insolvent, a Creditors’ Voluntary Liquidation (CVL) may be on the cards which is a voluntary liquidation process for businesses with no financial future in sight.
Company dissolution – Dissolving a company or company strike off is an informal method through which company directors can close a company with modest reserves and no debts. Once a strike off application is submitted and the company is struck off, the business will be removed from the Companies House register and cease to legally exist.
A partnership split may likely be the result of planned retirement, early retirement, divorce proceedings or the answer to a health emergency that pushes a partner out of work.
Ellisons Solicitors boasts the largest specialist Insolvency team in Essex and Suffolk. Our specialist Insolvency team can offer advice to partnerships, companies, directors and business owners in relation to all insolvency matters.