Business Partnership: How to Part Ways Without Destroying Each Other

A business partnership has a lot in common with a marriage. At the start you share a vision, trust and enthusiasm; at the end you share the accounts, the liabilities and mutual disappointment. And as in a marriage, the way you part determines how you live afterwards.

Over the years I have seen partner breakups that were handled in a civilised way, to the satisfaction of both sides. I have also seen breakups that dragged on for years, cost millions and destroyed both the company and personal relationships. Each time, the outcome depended mainly on how the parties approached the separation. Who was right mattered less.

¶ Phase One: Signals, While There Is Still Time to Fix Things

Every partner breakup has a prelude. It usually lasts months, sometimes years; it is just that nobody wants to see it.

The signals are subtle but recognisable. One partner stops coming to meetings, another starts making decisions without consulting anyone, and a third feels he is "doing everything alone". Emails replace face-to-face meetings. Strategic questions get put off. Instead of "we", people start saying "I" and "he".

At this stage things can still be saved, provided both sides are willing to talk about the real problems rather than just their symptoms. For instance, that priorities or the vision have changed, or that contributions and returns are no longer in balance.

Most partners skip this phase. Either they avoid conflict or they think "it will pass". It won't. Problems in a partnership do not go away because you ignore them; they only get worse.

¶ Phase Two: The Decision and the Point of No Return

One day the breakup becomes inevitable. A simple test will tell you: imagine you are still partners five years from now. Do you feel energy or anxiety?

If it is anxiety, it is time to act. That means taking several key steps before the other side takes them for you.

Secure access to the accounts. This is the first and most important step. Once it is clear you are heading for a split, you need to know the state of the company: how much is in the bank, what liabilities and receivables it has, and who signed what.

I have often seen one partner "unexpectedly" lose access to the bank account or the accounting system. It was no coincidence; it was tactics. If you let yourself be caught off guard, you are playing from a weaker position from the outset.

Read the articles of association. I know it sounds absurd, since you signed them yourself. But most partners signed them years ago and have not looked at them since. Yet it is the articles of association that set out how shares are transferred, how the price is determined and what rules apply to a departing partner.

If they do not deal with these questions, and a surprising number do not, the statutory rules apply. Those may not say what you expect.

Map all liabilities. Who guarantees the loan? Who is the managing director and what does that mean for personal liability? Are there contracts that require both partners' consent? Are there clients tied to one of you?

This inventory is not pleasant, but there is no way around it. A breakup without knowing the true state of the company ends like a divorce without knowing the family finances: badly for both sides.

¶ Phase Three: Execution and What to Do First

The decision has been made, and now comes the most delicate phase: actually carrying out the separation.

Three principles should guide every step:

Document everything. From now on, every email, every meeting and every decision is potential evidence. You may not plan to go to court. But if it does come to that, and in practice it happens more often than you would expect, you will need to show what was agreed, what was promised and what was done.

Separate emotions from decisions. This is the hardest advice to follow and the most important. A partner breakup is full of emotion: disappointment, a sense of betrayal, anger, fear. Emotions distort decisions. A partner who feels cheated turns down a fair offer because "they don't deserve it". A frightened partner accepts a bad offer because he "just wants some peace".

In this phase a good lawyer does more than give legal advice. He acts as a filter between emotions and decisions and says: "I understand you are angry. But this decision will cost you X. Is your anger worth X?"

Have a Plan B. What happens if you cannot agree? What is your alternative? Can you leave and start a new company? Can you sell your share to a third party? In an s.r.o., unless the memorandum of association provides otherwise, you need the consent of the general meeting (Section 208 of the Czech Business Corporations Act). Can you ask the court to terminate your membership in the company? In an s.r.o. that is possible if you cannot fairly be expected to remain in the company (Section 205 of the Business Corporations Act).

Knowing your alternatives strengthens your negotiating position. Whoever has nowhere to go is always at a disadvantage.

¶ Phase Four: After the Breakup, Don't Burn Bridges You Will Need

The breakup is done. The share has been transferred, the company divided, the contracts signed. Now comes the phase most people forget: life after the breakup.

The Czech business community is small, especially in the regions and in niche sectors. The person you are parting from today could be your client, supplier or competitor tomorrow. They could also recommend you, or not, to someone thinking of working with you.

You do not have to be naive or soft; you just have to act strategically. Part firmly but fairly. Keep your promises, do not speak badly of your former partner, and keep the door open, if only because you do not know what you will need a year from now.

I have seen cases where former partners worked together on a specific project after the breakup, and it worked. The separation had removed what was not working in the partnership and left mutual respect intact. But I have also seen cases where one partner systematically damaged the other's reputation after the split and in the end hurt himself most.

¶ Emotions Are Not Strategy

If you take just one thought away from this article, let it be this: emotions in a partner breakup are inevitable, but they must not drive your decisions.

Every decision should therefore pass a simple test. Am I doing this because it is strategically sound, or because that is how I feel?

If the answer is "because that is how I feel", stop, take a breath and call your lawyer. Make the decision only after that, with a cool head.

A partner breakup need not end in disaster if you approach it with a cool head and a clear plan. And with the awareness that in a few years you may meet your former partner on the other side of the negotiating table.

The best prevention is articles of association that work and deal with situations like this before they arise. If the partner's exit involves selling the share to a third party, due diligence is in order. And if negotiations stall, it helps to think strategically: litigation and business negotiation have more in common than you might think. A partner breakup often looks like a game of chess (both know the assets and the liabilities) but is actually played as poker (each holds cards about their own alternatives) inside Monopoly (whoever has deeper pockets lasts longer). I have unpacked that difference and its strategic consequences in Chess, poker, Monopoly – and Snakes and Ladders.