Whether due to an argument, a retirement, a death, or even a planned exit, the bottom line to a non-attorney is that your partnership is coming to an end. If you’re an attorney, the different words to describe the process are both familiar and important. But if you’re a partner in a business, it is essential that you learn the significant differences between dissolution and termination, and you need to understand what they are so that you can participate fully in the process. You’ll also want to be familiar with the term withdrawal, which offers another potential option and outcomes that may be available that will change the operation while keeping it operating.
It can be hard to distinguish between the terms dissolution and termination: the language used to describe the two is so similar that to a non-attorney, it feels like splitting hairs. But if you use a more familiar linguistic scenario, the difference begins to make sense. When you speak to a friend at a social event and they tell you that they’re having a baby, you understand that they mean that they are expecting to deliver a child at some future point rather than being in labor at that moment. Keeping this example in mind can be helpful when discussing dissolution and termination. Both have the same result, but dissolution is the process, and termination is the outcome.
When you are dissolving a business partnership, you are notifying agencies, creditors, customers, and other stakeholders. You are filing a certificate of dissolution with your Secretary of State and filing and paying taxes. By contrast, termination is when at least half of the interest in your business’ capital and profits have been sold or exchanged within a year and all business operations have come to a stop.
On a positive note, not every death, retirement, or argument has to mean the end of your business operations. You can make adjustments to your partnership agreement to allow one or more partner to exit and transfer assets in a way that allows their withdrawal while the business continues.
For assistance with managing the legalities of your business operations and how to address partnership issues, contact our law firm today.