When you’re deciding to open up a business, whether it is in Seattle or Portland or somewhere in between, one of the key first decisions is what form that business should take.
One such form, which happens to be the default in many jurisdictions, is the traditional partnership.
Oregon has adopted the Revised Uniform Partnership Act or RUPA. Under RUPA, most aspects of a partnership break-up can be dealt with by agreement of the parties. If the parties haven’t anticipated what might happen, RUPA steps in and fills in the blanks.
As one legal commentator famously noted, in partnerships, like marriages, getting together is easier than breaking up.
Many of my Portland or Seattle business law clients assume that when a partnership breaks up, each party takes their toys and goes home. Not necessarily so.
Dissociation occurs in a number of circumstances, such as when a partner dies or decides to simply pull out of the partnership, for example.
When a partner is dissociated, the partnership continues on without that former partner, who is bought out for ‘fair value.’ However, assessing fair value can be a complicated task requiring the assistance of expert economists and business attorneys.
When the partnership dissolves, the parties are forced under RUPA to go through a detailed accounting process known as ‘winding up.’ Winding up involves crediting and debiting the individual partner accounts and dealing with all of the partnership’s obligations. The dissolution process can be complicated, it can be costly, and sometimes it can be unpredictable.
The point, as always, is to anticipate as much as you possibly can up-front, ideally before the partnership or business relationship ever starts (or, at least, before it has turned ugly). Seek experienced business law counsel and tell your new partner(s) to do the same.
If there is a particular way that you and your partner would like to streamline the process upon a break-up, make sure to get it in writing and make it as clear as you can.
Sound a bit like a pre-nuptial agreement? Perhaps. But if you’ve been in the middle of a messy divorce, you know there are worse things than clarity in a break up. In business, it’s no different.