Partnerships can dissolve for many reasons. There can be a set date by which the original partnership agreement expires, or the business goal that was set out from the beginning may have been achieved. Sometimes partners’ circumstances change, or there are disagreements among the partners that make parting ways the best choice for all involved. Whatever the reason, formally ending a business partnership requires a series of steps, including the distribution of assets and the resolution of any outstanding obligations. One of the most important aspects of partnership dissolution is valuing the business and its assets to ensure that there is a fair resolution in the partnership buyout.

Valuation involves assessing the worth of the business’s assets as well as its liabilities. By making sure that this is done fairly and accurately, you ensure that each partner’s interests are addressed. Following valuation, an individual partner may decide to buy out the interests of any departing partner. This is one of the easiest ways to facilitate their departure without having to sell the entire business or liquidate its assets: otherwise, assets and liabilities would have to be settled through a process of distribution based on the percentage of ownership. A partner who is departing would receive compensation for their share of the business, while full control of the business would remain with those remaining.

The more amicably partners can work together during this process, the better for all involved, and that is why it’s so important that valuation be done in a way that ensures that fair market value is determined with care. There are several ways that value can be determined: some professionals rely on an income approach, while others prefer an asset-based approach or a market approach, keeping any existing agreements or clauses within the partnership agreement regarding dissolution buyout, and valuation at the forefront. Much of this determination will have to do with the type of business that is involved and the industry in which it operates.

No matter the approach, the goal of valuation in a partnership dissolution is to achieve a resolution that leaves all involved satisfied that they have been treated fairly and equitably. For legal assistance in addressing partnership dissolution issues surrounding your business, contact us today.