The problem
You've just had yet another blazing row over the running of your hotel with your business partner. You and your partner have totally different management styles and can't see a way forward for the business. This has been going on for more than four years, and you've had enough.
The law
Given the circumstances, the usual solution is for either one party to buy out the other, or for a third party to buy out the whole business with the proceeds distributed to the two partners. Failing that, the venture could be put into liquidation and the proceeds shared between the parties.
Expert advice
Partnerships are often a mix of differing personalities and management styles. This can be a good thing, allowing the business to draw on the strengths of the different partners. However, in times of conflict, matters can frequently escalate as the parties "dig in" for a major dispute.
Conflict can be resolved with a little goodwill between the parties. Meeting at a neutral venue to define what the issues actually are and talking through them can be a good first step.
Sociologists often report that in 75% of husband and wife partnership disputes the parties are battling over different things. The same stresses and strains can evolve in business partnerships and you can't resolve the conflict if the parties concerned think it's about different issues. Try to list as many shared concerns as possible so that you can work together against the problems, rather than against each other.
If you really are unable to work things out and it's the end of your business relationship, then the first thing to do is to read for yourself the relevant partnership deed and familiarise yourself with the rules that you've agreed to. Unless there are special provisions in the partnership deed - or, indeed, if there is no partnership deed - a partnership can be terminated at will upon notice from one partner or the other.
One partner can give notice to end the partnership, and then the partnership is dissolved and the assets must be sold and distributed among the partners. In order to prevent this situation, one partner may be forced to buy out the other, or there may be provisions in the partnership deed insisting that, before sale, one partner must offer it to the other.
You should check your documentation to see whether there are any provisions with rules of how the hotel must be valued (eg, number of times turnover, valuation of property, etc). If there are no such provisions then, as a first step, you should obtain a valuation from an expert valuer.
The threat of dissolution, which would be favourable to neither party, may encourage one party to buy out the other. The partnership deed may also provide a mechanism for resolving the dispute, providing for sealed bids, with the highest bid to win, or providing for an agreed valuer to value the business if only one party wishes to buy and one party wishes to sell.
Check list
- Find the documents covering the partnership (eg, partnership deed).
- Check what these documents say about decisions being reached and who, if anybody, has the majority control if there's deadlock.
- Check whether there are any valuation provisions in this documentation or procedures for resolving disputes.
- Take advice from a valuer as to the value of the hotel in the light of the constitution of documents and whether you have a majority or minority interest.
Beware!
If you cannot come to an agreement with your partner, then the deadlock may continue and damage the business, since key material decisions may not be taken. If you cannot reach an amicable settlement either to sell the business or for one party to buy out the other, the result may be a costly dissolution with expensive liquidators' fees and a sale to a third party, which neither side wants.
Contacts
Chris Lane
Kingston Smith
020 7566 4000
clane@kingstonsmith.co.uk