Reading time: 4 minutes

Running a business is challenging, especially when your partner decides to leave the business. There are many reasons why this can happen. For example, you may have found a partner only to discover that you do not work well together. Alternatively, you may have formed a strong partnership, but your partner no longer has time to run the business. Whatever the reason, it is essential that you take the proper steps to continue the business without them. This article will set out the steps you should take if your co-founder or partner leaves your business.

Type of Business

First, you need to consider the structure of your business. This is because the structure will have a significant impact on the process of leaving the business. There are two common business structures partners use. 

Partnership

If your partner leaves your business, you will need to terminate the partnership. This is because you need two or more people to form a legal partnership. Once you end the partnership, you can start a new partnership with other partners or continue as a sole trader.

If your business has a partnership agreement, you should follow the procedure set out in the agreement. For example, your partnership agreement may require the leaving partner give 30 days written notice to the other partner of their intention to leave.

If your business does not have a partnership agreement, the steps you and your partner will need to follow are in the Partnership Act. This Act varies between states and territories, so you should follow the one that applies to you.

For example, the Partnership Act 1892 (NSW) governs partnerships in NSW. This Act requires the leaving partner to notify the other partners of their intention to leave the business.

Your partnership will be officially terminated either on receipt of the notice or, if the notice specifies a date of termination, on that date. You will need to cancel your current ABN and re-apply for a new ABN as a sole trader, or as soon as a new partnership forms.

In most cases, your partner will be entitled to their proportion of the business’ value, including the partnership’s assets and profits, less the partnership’s expenses and debts.

Company

If you are running your business as a company, you need to follow the process in the Corporations Act 2001. You should also follow any specific company procedures.

You should first review your company’s constitution and shareholders agreement to determine any specific requirements applicable to your co-founder withdrawing. For example, you should follow the process for selling your co-founder’s shares set out in the agreement or constitution.

Most companies provide preemptive rights to existing shareholders. This means the person wanting to leave the company will need to offer their shares to the remaining shareholders. Shareholders have the option to waive their preemptive rights. If all of the shareholders do this, then the leaving shareholder can offer the shares to a third party. Depending on your shareholders agreement, you may need to approve this third-party purchase.

If your co-founder’s shares were subject to vesting and they have not vested, the company will need to buy the shares back. This is also the case if your shareholders agreement has leaver provisions, which require a leaving shareholder to sell their shares back to the company. Once all of the shares have been sold, the leaving shareholder will need to resign as a director by providing the company with a director’s letter of resignation.

To remove your partner as a shareholder and director, your company will need to: 

  1. prepare a share transfer form and new share certificates;
  2. prepare minutes and resolutions to approve the transfer;
  3. update the members’ register; and
  4. update the information on ASIC by completing a Form 484 within 28 days of the partner leaving.

Once you have completed these steps, your partner will no longer be part of the company.

Key Takeaways

You should be prepared in the event your co-founder or partner leaves your business. It is essential you follow the correct steps, depending on whether your business runs as a partnership or company. This is to ensure the smooth exit of your partner or co-founder so you can continue your business without interruption. If you have any questions, get in touch with LegalVision’s business lawyers on1300 544 755 or fill out the form on this page.

Webinars

How to Sponsor Professionals For Your Healthcare Organisation

Thursday 24 March | 11:00 - 11:45am

Online
Plug skill shortages in your healthcare organisation by sponsoring professionals from overseas. Learn how in our free webinar.
Register Now

Everything You Need to Know about SaaS Agreements

Thursday 7 April | 11:00 - 11:45am

Online
Understand which contracts will protect your SaaS contract from risk, and how. Register for free today.
Register Now

What to Consider When Buying a Tech or Online Business

Wednesday 13 April | 11:00 - 11:45am

Online
Learn how to get the best deal when buying a tech or online business. Register for our free webinar today.
Register Now

Corporate Governance 101: Responsibilities for New Directors

Wednesday 27 April | 11:00 - 11:45am

Online
If you are a new company director, join our free webinar to understand your legal compliance obligations. Register today.
Register Now

Rogue Directors and Business Divorces: How to Remove a Director

Thursday 28 April | 11:00 - 11:45am

Online
Removing a board director is not simple. Join our free webinar to learn how to handle rogue directors. Register today.
Register Now

Employment Essentials for Tech Businesses

Thursday 5 May | 11:00 - 11:45am

Online
Protect your tech business and your employees by understanding your employment legal obligations. Register for our free webinar today.
Register Now

How to Protect and Enforce Your Trade Mark

Wednesday 11 May | 11:00 - 11:45am

Online
Protect your business’ brand from copycats and competitors. Register for this free webinar to learn how.
Register Now

How Franchisors Can Avoid Misleading and Deceptive Conduct

Wednesday 18 May | 11:00 - 11:45am

Online
Ensure your franchise is not accused of misleading and deceptive conduct. Register for our free webinar today.
Register Now

How to Expand Your Business Into a Franchise

Thursday 26 May | 11:00 - 11:45am

Online
Drive rapid growth in your business by turning it into a franchise. To learn how, join our free webinar. Register today.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer