Circumstances leading to a breakdown in a business relationship are often unforeseen at the outset of the relationship. Whether it be festering frustrations from an unequal commitment, a lack of business success, a clash of personalities, or a difference in priorities, business relationships can and often do fail. When they do flounder or fail, it is not uncommon to wonder what legal options are available to put a formal end to the relationship.
The starting point for an analysis of the legal options available to end the business relationship is how the business is organized. There are four typical types of business structures: sole proprietorships, partnerships, corporations and co-operatives. The options and remedies available on the breakdown of a relationship in a corporation can be dramatically different than if your business is organized as a partnership. For example, a loss of trust in a partnership may give rise to a decision by one partner to deliver a notice to dissolve the partnership under the Partnerships Act. The Partnerships Act prescribes a specific set of statutory rules and procedures for how that partnership is “wound up”. By contrast, a loss of trust in a fellow director of a corporation would be governed, in most cases, by rules set out in the Business Corporations Act.
In addition to looking at the law applicable to the type of business structure, any written agreements which may contemplate and set up rules for breakdowns in the business relationships should be reviewed. For example, partnership agreements and shareholder agreements will frequently set up rules for dissolutions, buyouts or winds ups, including issues such as when and by what means a formal end to a relationship can be triggered.
When a business relationship does break down it is critical that, early into the breakdown, you consult a lawyer to fully understand your legal position and the options that may be available to you. Knowing your legal rights and obligations as well as options available to you can assist to save you time, money and the escalation of acrimony between you and your partner. It can also protect you from the risks and liabilities of an end which is not formal nor complete.