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Your responsibilities when your business partner dies or quits

by | Aug 3, 2021 | Franchise Agreements

It’s a simple fact that franchise business partners owe fiduciary duties to each other. You share in the profits of your business as well as the risks and liability, and you make important decisions together. If your partner passes away, or if they decide to leave the partnership, what does your fiduciary duty require you to do in order to avoid the possibility of getting sued?

Verify your contractual obligations

The first thing you should do is to re-read the terms of your articles of incorporation or partnership agreement. You might have agreed to certain obligations when you joined this partnership. Many governing documents include things such as buy/sell agreements.

A buy/sell agreement is a clause that gives a departing partner the chance to receive the value of their ownership interest in the franchise when they leave the company. This means that if your company is under a buy/sell agreement, then either you or the company itself will have to buy out the interest of the partner. If the partner is deceased, you must pay the value of their ownership interest to their executor.

Sometimes, partnerships automatically dissolve upon the death or departure of one of the partners. Make sure that your partnership is allowed to continue on without the departing partner according to the terms of your partnership agreement.

Execute a proper separation agreement

While not strictly necessary, it’s a good idea to draft a separation agreement and have all partners sign it. That way, if a lawsuit arises down the road over the circumstances of the partner’s departure, you will be able to demonstrate that you complied with all agreed-upon terms.

Adaptability is a key characteristic of any successful franchise or any type of business owner. Knowing what your contractual obligations are in the event of a departing business partner can help you to take proactive steps to protect your business from a possible lawsuit.