I am in an equal partnership (50%) in a PTY which has...

I am in an equal partnership (50%) in a PTY which has been trading for 10 years. I want out of the business and my partner cannot buy me out. What are my option and obligations?

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A partnership is much easier to get into than out of. You need to review the partnership agreement to understand what rights you have and what your obligations are.

It is always best to involve a lawyer when you dissolve a partnership. A professional can analyse the business and read the partnership agreement so that the best possible solution be found.

If one partner cannot afford to buy the other out one approach is to sell to a third party as a “going concern”. “Selling to a third party is usually the best way to go. However, much of what you decide depends on what is set out in the Partnership Agreement. You would have to follow the provision set out in the Memorandum of Association and Articles of Association of the company,” advises Stephen Kennedy-Good, an associate at the legal firm of Deneys Reitz.

The Memorandum of Association sets out the main objects and main business of the company, while the Articles of Association deals with the details of how the company is established and run.

“Depending on the agreement, another possibility to consider is that the company itself buys back the shares. Let’s say you have 50 shares, the company can buy these shares, (not your partner), and then the company is left with a sole owner. However, the buying back of the shares by the company (not the partner) must be allowed in the terms of the Memorandum of Association and Articles of Association of the company. The requirements of Section 85 of the Companies Act must also be met,” says Kennedy-Good.

The most drastic option is to close down the business and liquidate the assets. “This is not a good option as the remaining partner no longer has an income. It is best that you visit an attorney who can assess the situation professionally and find a fair and constructive solution to this problem”, recommends Kennedy-Good.

Contact Deneys Reitz +27 11 685 8500 or visit www.deneysreitz.co.za.

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