No matter whether you’re ending your partnership on a high note or in despair, whether the result of achieving your goals or failure, there are specific steps that must be taken to officially and formally dissolve the entity. Though it’s certainly true that you could just walk away and stop operations, doing so would leave all parties vulnerable to tax liabilities, as well as fees, penalties, and legal liabilities. It is much better to go through the steps that the state of Pennsylvania requires for partnership termination.
While the optimal situation is to have a partnership agreement in place that spells out all of the steps to dissolution, not everybody takes the time or spends the money to craft this type of document when they’re starting out. If this is the case and there is no pre-set dissolution process, you must follow Pennsylvania’s default rules, which require consent from all partners.
Though not mandatory, it is also a good idea to file a Certificate of Dissolution, which notifies the public of the company’s termination.
Beyond the paperwork involved, companies also need to go through a winding up process through which it discharges all of its debts, obligations and liabilities; collects and distributes its assets; and settles its affairs. This generally means paying creditors before distributing what is left in cash to each partner. Terminated partnerships also need to submit all appropriate tax forms and pay all tax liabilities, after which they can apply for tax clearance certificates from the state. After all of these steps have been completed, the partners can request a Certificate of Termination from the Pennsylvania Department of State.
While these steps seem fairly straightforward, they are also time-consuming and can be complicated by issues including animosity or arguments between the partners; the death of a partner; legal claims against the partnership; and more. The best way to minimize stress, expense, and frustration is to have a partnership agreement in place from the start, or failing that having one crafted by an experienced business attorney long before there is a need to terminate the business.
If you need assistance in creating a partnership agreement, or in navigating the dissolution of your existing partnership, our knowledgeable lawyers can help. Contact us today to set up a time for us to meet.