It is critical to totally and effectively dissolve your partnership so that your duties under your partnership agreement are appropriately terminated.
There are several reasons why you would wish to end a relationship. A business partner may retire or become bankrupt. Perhaps you and your partners formed your partnership to achieve certain goals, and now that those goals have been realised, the partnership is no longer required.
Dissolving a partnership does not always imply that you and your partners no longer desire to conduct business together; in certain circumstances, the expansion of your firm may indicate that a corporation structure is now the most suitable business structure for your company.
How to End a Partnership
Whether your partnership is a general partnership, a limited partnership, or a limited liability partnership (LLP), and whatever your reasons for dissolving the partnership, there are a few steps you must take to guarantee the partnership’s dissolution is completed legally. It is essential that you properly and totally dissolve your partnership in order to verify that your obligation under the partnership structure has terminated.
Your Partnership Contract
Hopefully, your partnership agreement includes a dissolution provision or dissolution clauses; certain partnership agreements may even contain particular dissolution processes to be followed in certain instances. If your specific circumstance, or dissolution in general, is addressed under your partnership agreement. To dissolve your partnership, you must follow the requirements indicated in the agreement.
What If Your Partnership Agreement Doesn’t Include a Provision for Dissolution?
What if your partnership agreement makes no mention of dissolution? Or maybe you and your partners never had a formal partnership agreement in the first place. In such instances, you must sit down with your partners and agree on the conditions of dissolution as a group. When it comes to company dissolution, there are many factors to consider.
If you are having difficulty reaching an agreement, you may want to consider engaging a third party to assist you. If everything else fails, you may seek a court-ordered dissolution, but bear in mind that this is a costly approach that may not result in a fair conclusion.
Agreement for Partnership Dissolution
Even if your partnership agreement has dissolution provisions, you and your partners should examine the concerns surrounding the dissolution of your partnership, including how existing responsibilities and debts should be handled. Once you’ve reached an agreement, you should prepare a partnership dissolution agreement. A divorce agreement outlines the termination conditions you’ve agreed to and may give clarity on problems that may assist avoid future misunderstandings.
If your partnership’s dissolution difficulties are extensive, consider engaging an attorney to assist you establish a dissolution agreement that addresses your specific requirements.
Before signing the dissolution agreement, be certain that all responsibilities and obligations agreed upon by each of you under the conditions of the partnership have been accomplished and that no duties remain outstanding.
State Statutes
In addition to your partnership agreement, you should review your state business legislation, since partnership dissolution is controlled by state law. The Secretary of State’s office or website in your state should include information on the procedure for dissolving a partnership, any relevant termination fees, and the papers that must be completed.
You must submit a declaration of dissolution (also known as a certificate of cancellation in certain jurisdictions) with your state. It may take up to 90 days for your partnership to be dissolved once you submit the declaration of dissolution.
Inform Your Clients, Customers, and Vendors
While your state may require you to issue a notice of your partnership dissolution in a local newspaper, it’s equally critical that you personally tell all of the persons and companies with whom you’ve done business as a partnership.
By sending this notice to your clients, customers, and suppliers, you are advising them that the partnership has ended and that you and your partners are no longer liable for each other’s debts and responsibilities under the partnership.
Other Concerns
Other issues that should be addressed throughout the dissolution process include:
Permits, licences, and registrations Terminate or terminate your partnership’s business permits, licences, and any business-related registrations, such as the registration of a false name.
Taxes and creditors Creditors must be contacted and their accounts must be resolved. If your partnership employed anybody, payroll tax payments should be paid as needed, and any applicable employment tax forms should be completed. Notify local, state, and federal tax authorities of the dissolution of your partnership as well.
Contracts, leases, and other types of arrangements Any contracts, leases, or agreements related to your partnership must be reviewed to see how the dissolution would effect them. Some agreements, for example, may become null and invalid if your partnership dissolves, but others may demand that the provisions of the agreement be followed regardless.
Accounts in the bank Close any bank accounts associated with your partnership.
Partners should get the money they initially placed into the partnership when the business has fulfilled all of its outstanding debts and obligations. After these capital contributions have been refunded, the partnership’s residual assets, if any, should be allocated in accordance with each partner’s ownership stake.
Partnerships do come to an end for a variety of reasons. It is critical to totally and effectively dissolve your partnership so that your duties under your partnership agreement are appropriately terminated.