At the outset, let me clarify this is not an article by a legal expert, and readers are advised to approach legal experts in the relevant field.
That said, there are several aspects of a partner relationship; you need to understand why you are planning to enter into a business partnership with another person or group of persons.
The information will also help those who are already in a partnership.
Steps to take if the partner absconds:
Take remedial measures to protect the finances of the firm
Immediately contact your bank and inform them to restrict access to business finances. Inform the bank to freeze any access to the business account’s debit or credit card held by the partner. The bank may temporarily freeze access or may insist on an F.I.R before taking action.
Gather all relevant evidence to help prove wrongdoing, if any
A partner may be missing, but you need to gather evidence of any wrongdoing or misappropriation by the partner. Any future decisions or actions must be based on the evidence gathered. If the process takes time, proceed to take further steps, as mentioned below.
Inform your C.A
Some may debate whether to approach a legal expert immediately or the Chartered Accountant. It may be advisable to contact the C.A first and take the person’s advice on how the protect the business finances.
Approach a legal expert
Take legal advice on how to proceed further. Future action depends on available proof of fraud or misappropriation. A partner may be missing on account of an accident, memory loss, or for any other reason beyond the person’s control.
File the F.I.R
All official actions taken by you may require a First Information Report (F.I.R) to be filed in the concerned police station. If you are convinced the partner is indeed absconding or missing, proceed to file the F.I.R immediately.
Officially communicate with your clients, associates, and other stakeholders
Officially communicate with all business associates, distributors, dealers, clients, and other stakeholders regarding the situation and caution them against any business dealings with the partner unless authorized by you.
It will help indemnify (protect) you from liabilities in case of any losses incurred by any stakeholder through deals or actions with the absconding partner, after your official communication. Ensure written confirmation is received from everyone you intimate.
Restore confidence in the employees
Officially and personally communicate with all your employees, irrespective of their location, informing them of the development and cautioning them from dealing with the partner.
Reassure them of the stability of the business and continuity of their employment. It will help boost morale and restore confidence in your ability to successfully run the business, hereon.
Understand why the partner absconded
A missing partner may not necessarily abscond due to any mal intention. A person could have met an accident or suffered a memory loss. Therefore, while it is essential to file an F.I.R, it is crucial to communicate with the partner’s family to try and understand the whereabouts of the partner and also why he may have taken the actions he did.
Steps to take BEFORE entering into a Partnership
Most disputes in a partnership occur due to a lack of clear definition and understanding of the terms of Partnership, which all partners must discuss and agree upon before proceeding with the business.
The points below are a reference to help prevent such eventualities in the future.
Define and agree on why you are entering the business relationship
It’s vital to mutually agree on why you are entering the business and set milestones with timelines on where you see the company in the short, medium and long term.
Define and agree on each partner’s cash contribution and the ratio of share in profit and loss
Defining the cash and asset contribution of each partner as also the share of profit and loss will help avoid disputes later.
Define and agree on the official valuation of assets being pledged for the business and ensure it is legally free from claims
Another reason for the dispute is a lack of transparency of the value of assets pledged and legal ownership. It’s possible a partner may overvalue an asset and may also offer an asset to the person without clear sole proprietorship.
Define and agree on the terms of ‘Sweat Equity,’ if any
A partner may contribute to the business by investing time and talent and not cash or asset. In such a case, the share in profit and loss as also emolument must be agreed upon and stated.
Define and agree on the EXIT policy of the partner(s)
Partners must agree upon how to amicably part ways in case any partner wishes to exit. Mostly, this is never discussed and agreed upon as part of the partnership terms and results in acrimony later.
Define and agree on the role and responsibility of each partner
Spell out who, what, and how each partner will function and contribute to the business.
Define and agree on who will control the business finances, decide on expenses, and future investments
Access and control of business finances can cause a lot of tension between partners. Discuss and agree before starting the business.
Define and agree on the involvement terms of any family member’s involvement either as a future partner or as an employee
In partnerships, a partner’s family member may enter the business in some form and can cause tensions. It is better to set up a policy on whether to involve or not to involve family members and friends of respective partners.