People change, and not always for the better. Which leads to the question: what is the best course of action when a trusted business partner turns out to be a rotten egg? The answer is not easy, but usually the best course of action is to promptly remove an untrustworthy partner from ownership in the business and also from participation in the company’s management.
Removal Provisions Need to be in the Governance Documents
The process of removing a bad business partner is often unpleasant and difficult, but it is likely unavoidable. To prepare for this type of risk, diligent majority owners will want to include “removal rights” in the company’s governing documents (the LLC agreement, the partnership agreement, or corporate bylaws) that provide for the removal of business partners who go off the rails. By the same token, minority investors will want to closely review all “bad boy” provisions to insist on changing these terms if they give the majority owner unbridled power that could be used abusively to harm the minority investor. Continue Reading Be Careful With the Rotten Egg: Removing a Bad Business Partner From the Company is Difficult