Bill Wiseacre never imagined that his longtime business partner, Angela, would put Uh-Oh Enterprises at risk. However, that’s exactly what happened when he discovered she had been abusing drugs during and outside of work hours.
At first, the signs were subtle. Angela’s behavior became erratic, her focus on business declined, and she frequently disappeared without explanation. But everything fell apart when she was arrested for felony possession with intent to distribute.
The impact on Uh-Oh Enterprises was immediate. Clients started asking uncomfortable questions, vendors grew hesitant, and the company’s reputation took a hit. Bill knew he had to act fast to protect everything he had built.
Desperate for a solution, Bill called his attorney. That’s when he realized a painful oversight: their operating agreement had no clear process for removing a partner for cause. If the agreement had covered illegal conduct, substance abuse, and reputational harm, Bill could have removed Angela swiftly.
The Pitfalls of a Vague Agreement
On the surface, Bill’s operating agreement seemed solid. It referenced teamwork, fiduciary duties, and acting in the company’s best interest. However, it failed to address partner conduct outside of finances. There were no clauses on drug abuse, criminal activity, or reputational damage.
Because the agreement was silent on these issues, Angela argued that her actions didn’t explicitly violate any terms. Legally, Bill’s hands were tied.
Legal Challenges in Removing Angela
Without a removal-for-cause provision, Bill’s attorney explained that his options were limited:
- Negotiate an Exit – Convincing Angela to leave voluntarily would take time and money.
- File for Dissolution – Ending the entire partnership would be expensive and complicated.
- Attempt a Lawsuit – Suing Angela for breach of fiduciary duty was an option, but the vague agreement weakened his case.
Bill was stunned. He wanted Angela out immediately—her conviction and drug use were clear threats—but the legal framework didn’t support a quick and cost-effective removal.
Taking Immediate Control
Despite the legal hurdles, Bill acted fast to stabilize the company. He revoked Angela’s access to accounts, files, and internal systems. He reassured key clients and vendors that the business remained strong and addressed concerns about leadership.
Yet, the pressing question remained: how could he permanently remove Angela from the partnership?
A Costly Negotiation
Weeks of back-and-forth negotiations followed. Angela’s attorney argued there was no contractual basis for her removal. Eventually, Bill managed to secure a settlement, but at a higher buyout price than he wanted. Without a removal-for-cause clause, he had no leverage, forcing him to pay more than necessary to push Angela out.
In the end, Bill got what he wanted—Angela’s departure. However, the process was longer and more expensive than it should have been. Worse, the uncertainty had left a dent in the company’s reputation.
The Hard Lesson and Moving Forward
Though relieved, Bill was frustrated. Why hadn’t he included a simple “removal for cause” provision in the first place? Had he done so, the company could have cut ties with Angela immediately after her arrest, avoiding costly negotiations.
Determined to prevent future issues, Bill worked with his attorney to revise the operating agreement. The new version included:
- Clear Definitions of Misconduct – Outlining unacceptable behavior, including substance abuse and criminal activity.
- Mandatory Reporting Requirements – Requiring partners to disclose legal troubles that could impact the business.
- Removal for Cause – Establishing a clear process to remove a partner when their actions harm the company.
What’s Next for Bill?
Having survived the ordeal, Bill focused on strengthening Uh-Oh Enterprises. He introduced stricter partner conduct policies and background checks for future hires. He also implemented workplace safety and substance abuse policies.
From now on, Bill planned to keep his operating agreement up to date—reviewing it annually to ensure it remained as strong as his business.
The Momentum Law Group Perspective
Bill’s experience underscores an important reality: a partner’s personal missteps can jeopardize a business just as much as financial misconduct. A strong operating agreement is the first line of defense.
Key takeaways from Bill’s ordeal:
- Define Misconduct Clearly – Cover more than financial wrongdoing; include reputational risks like criminal activity and substance abuse.
- Establish Clear Consequences – Ensure your agreement spells out how and why a partner can be removed.
- Review and Update Regularly – As your business evolves, so should your operating agreement. Annual reviews with legal counsel can prevent costly surprises.
Smart legal planning isn’t an afterthought—it’s essential. Don’t wait for a crisis to expose gaps in your agreement. Learn from Bill: prepare, protect, and safeguard your business from the unexpected.
WHAT WOULD YOU HAVE DONE IN BILL’S SITUATION?
Blog posts from Uh-Oh Enterprises are cautionary tales brought to you by Momentum Law Group. The fictional characters in this series reflect real-life challenges that can hold entrepreneurs like Bill back from achieving their full potential. #donotbelikeBill
