Sangeetha 23 March 2016

Partnership insolvency

4 partners enter into a partnership to start and operate a firm with a part of the initial capital invested by the partners and the rest taken as bank loan. After few years, due to challenges the business does not make enough profits as expected and a significant part of the loan is still due to be paid. At this juncture the partners need to either re-invest, say X amount, or clear off the loan which will be almost 4X. Even by selling the assests owned by the firm will not be sufficient to clear off the loan. In this situation one of the partner refuses to re-invest to recover the business and is also not willing to clear off his share of the loan. Other 3 partners are willing to re-invest. How to handle this issue in a legal way so that the other partner pays his share - either re-invest?

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dr g balakrishnan (advocate/counsel supreme court) 24 March 2016

sell the partnership ifit has some advantages by running swot analysis or invite new psartner in place one wants to leave, , ensure one partner at least knows the relevant business, after all any winding up will indeed land in losses after complete erosion of capitl pls. this is a business mgmt issue , you will end up paying banking loans, so before starting any business you shd know some business meaningfully pl. tks

Sangeetha 24 March 2016

Hello Dr. Balakrishnan,

Thank you for the suggestion. Selling is not an option. As you suggested we are considering to invite a new partner. Do you think we should continue with the same profit sharing with the new partner? As the new partner is entering into a business that's already established does it make sense to reduce the new partner's profits proportionately?

TIA!