One of Three Business Partners wants to leave

[january007]

One of three equal business partners wants to leave the company. The company has never made any money but does have sizeable debt. One of the partners took out a home equity loan with the understanding that all three partners would repay the loan should the business fail. With one partner wanting to leave it places us in the situation where if we fail we might not be able to repay the loan with only two partners. What should we expect from the third partner financially if they leave?

[audi1961]

if the partner wants to leave the busines then he is still liable for a third of the debt, you should also ask your solicitor to confirm this.

[Oneeyedvic]

He may not be - it depends on a few factors:

1) Did you have a shareholders agreement? (presumably not)

2) Whose name was the loan taken out in - the individual (and presumably their spouse?) or in the business name?

3) Is there anything in writing to confirm that all the partners were equal shareholders or that the company owed any amount to the individual who took out the loan?

4) Is the partner selling / relinquishing his shares to another individual or back to the other partners?

[january007]

1. There is no shareholder agreement other than to outline the number of llc units each partner has.

2. The loan is in the single partner's name.

3. The 3rd partner has no buyer for their shares and the two remaining partners don't want to take them.

[january007]

also, there is a faxed document concerning all three partners and the loan and we have additional paperwork from all three members from when we tried to get a loan as the business. We couldn't get that loan so we went with this alternative under the same "understanding". I feel this shows intent for the debt on the third person's part.

[Androcles]

It strikes me from what you say that the business is really broken in the sense that you cannot realistically carry on with two partners who cannot carry the debt and a third who does not want to stay.

Surely it is time to wind the business up and everybody pay their share of closing the business down - it seems the only practical way.