Dissolving a business is necessary for many reasons. If you (or one of your partners) wants out, legally you can’t just close the doors. By dissolving it, you are no longer responsible for the business’ taxes, cash flow, debts, or any of their other commitments. So, what do you have to do to dissolve your partnership? Here are some tips to help you through this difficult time.
Look at your partnership agreement
If you were smart (and got legal counsel before you signed your partnership agreement), you already made plans on how you want to dissolve your partnership. All you have to do at this point is to follow it.
If you didn’t, you need to sit down and come up with a plan
You are going to need to figure out how you want proceed. You are going to have to talk through many issues to come up with a plan that works for everyone.
This can be especially difficult if you and your partner are having trouble agreeing, which is why it is something that should be done before you start a business.
Don’t be afraid to seek legal counsel
You may need help from a person who is not going to side with anyone. Your lawyer will help you and your partner find a solution that works for everyone.
You will need to draft and sign a partnership dissolution agreement
You will include everything, from how you are going to terminate your business to how you deal with any obligations and debts that you still have. Once everyone is happy with it, you should all sign it.
This will come in handy if you and your partner have any disagreements coming forward.
If one partner wants to keep the business for him or herself, you could draft a buy-sell agreement
A buy-sell agreement determines who can and can’t buy into the business when one partner wants out (or dies). This is meant to protect the other partners who are already in the business.
There are times when you can get a decree from a court of equity
There are times when one partner is not doing his or her job and you may decide to dissolve the partnership. Whether they are just not able to do their job or they are incompetent, you may not need their permission to dissolve your partnership.
It is important you notify everyone who needs to know
You are going to need to let everyone you do business with know. Though you won’t forget to tell your clients and customers, you also need to let your suppliers and other businesses that you work with regularly. Don’t forget to let your creditors and banks know.
This tells them that, once the business no longer exists, you won’t be held liable for any debts and obligations that were previously made.
Dissolving a business can be a devastating blow, especially if you have spent years building a business you could be proud of. Unfortunately, many businesses don’t last more than two years, and rarely do any make it past five.
Because of this, you should always have a partnership agreement signed before you even started the business. This will help you easily dissolve your business because all of the hard stuff was already discussed. Once you are bickering with your partners, you may struggle to come up with a solution which works for everyone!
Don’t forget to tell everyone once you have signed a partnership dissolution agreement. Not only do your clients need to know, your debtors and other companies that you work with deserve to know.
Contact us for all of your legal needs. We will be glad to help you through this difficult transition.