Many business partnerships begin with high expectations for success and may be formed with spouses or friends. Sometimes, circumstances change in a way that makes you decide to end the partnership, such as a shift in the market, a new family situation, or changing priorities.
To protect yourself and your company, it’s essential to understand the steps and liabilities involved in ending a business partnership. By knowing how to proceed, you can dissolve the business partnership efficiently and effectively while keeping your relationship with your former business partner intact.
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Below, we cover the partnership dissolution process, types of business partnership dissolutions, and protection from business partnership liability.
How the Partnership Dissolution Process Works
While dissolving a business partnership is a bit more complicated than closing the business and ceasing operations, the process doesn’t need to be overly complex. Below are the steps you must take to successfully dissolve a business partnership:
- Create a business partnership dissolution agreement: One of the first steps in dissolving a business partnership is creating a dissolution agreement. Vote on your decision and then create your agreement. This agreement details your agreed-upon termination terms. Document your votes for dissolution, as well.
- Discuss terms: Sit down with your partner to discuss the issues and terms of the dissolution. The goal is to end the business partnership amicably without disputes, which is why discussing your current business situation and potential opportunities is essential when developing an exit strategy together. When everyone is on the same page, the dissolution process can go smoother. If you and your partner disagree, seek legal counsel or an impartial third party to mediate.
- Ensure all laws are followed: Review the business laws in your state to ensure you follow all relevant laws. These laws will guide how you dissolve your business partnership. The type of partnership you have could influence the dissolution process, such as limited partnerships, general partnerships, or limited liability companies. Visit the Secretary of State’s website or office for information on the business partnership dissolution process, required forms, and relevant termination fees.
- File a statement of dissolution: Next, you should file a statement of dissolution. This step can take varied amounts of time, as the time allotted may sit in the hands of the Secretary of State.
- Notify anyone you do business with of the dissolution: One of the last remaining steps in the dissolution process is updating those you do business with about the dissolution, such as your customers and suppliers. You may also be required to notify creditors, banking institutions, and governmental entities. After you notify the relevant parties, you may have to settle with creditors and receive written approval from board members or shareholders.
- File tax forms: You may need to file tax forms at the federal, state level, and local levels.
- Divide assets: After you settle your business obligations and debts, you should divide the remaining assets between yourself and your partners.
You may face some legal issues during this time that mandate a business lawyer’s experience and advice, such as overseeing stock distributions or creditors rejecting your claims. Contact us at Calabrese Law Associates for legal assistance during a business partnership dissolution.
Types of Business Partnership Dissolutions
Emotions can run high during the dissolution of a business partnership, and both the feelings involved and the terms of the agreement can influence how the dissolution proceeds. The following are the types of dissolutions you may face as a business partner:
1. Uncontested Dissolution
An uncontested dissolution of a business partnership occurs when each partner agrees to dissolve the partnership. As such, uncontested dissolutions are an easier process. If you have an uncontested dissolution, you can complete the process by following the steps outlined above.
Typically, an uncontested dissolution involves one or more of the following situations:
- Divorce
- Change of career
- Retirement
- Death of a family member
- Disability or incapacitation
When you and your partners work together to stick to the business partnership dissolution agreement, you may be more likely to achieve fair, amicable, and positive results for every party involved.
2. Contested Dissolution
A contested dissolution of a business partnership occurs when one of the partners requests dissolution because they cannot resolve a disagreement. Contested partnership dissolutions tend to be more challenging than uncontested dissolutions — there is more likely to be animosity present and difficulty reaching a fair resolution.
Common causes of contested dissolutions include:
- Unclear terms of departure
- Differences in management style
- Disagreements over asset and liability distribution
- Differing opinions on how to successfully run the business
Tension can run high in a contested dissolution, which means it may be in your best interest to solicit the advice of an experienced attorney from Calabrese Law Associates.
Protection From Business Partnership Liability
As a business partner, you may face some liability concerns if the partnership is not dissolved properly, such as:
- Debt: You may have debt obligations, such as property leases, business loans, and vehicle leases.
- Legal actions: A limited liability partnership does not offer liability protection against the negligent actions of employees or fraud claims. This type of partnership also does not protect partners who witness or are part of another partner’s criminal actions.
- Actions of the partnership: You may face liability for the actions of the partnership. In a general partnership, you and each of your partners may be personally liable for every debt and judgment against your partnership, regardless of whether an individual partner or the organization incurred the debt.
Contact Calabrese Law Associates Today
At Calabrese Law Associates, we work in an effective, efficient manner to bring you industry-leading legal representation during the dissolution of your business partnership. We understand issues of liability in businesses with partnerships, so we can guide you through every step of the process of business partnership dissolution.
We possess the industry insight and knowledge you need to succeed in competitive industries. Our team has experienced trial attorneys who can reach the greatest possible result for your unique circumstances. If your business is located in the Greater Boston Area, contact us at Calabrese Law Associates for help with the dissolution of a business partnership.
*This publication and its contents are not to be construed as legal advice nor a recommendation to you as to how to proceed. Please consult with a local licensed attorney directly before taking any action that could have legal consequences. This publication and its content do not create an attorney-client relationship and are being provided for general informational purposes only.
*Attorney Advertising. Prior results do not guarantee a similar outcome.