A business partnership is a legal entity, and that means that there are specific requirements for bringing it to a close. Whether the partnership is ending due to retirement or death, having achieved its goals, the development of animosity between partners, or a simple loss of interest, it is essential that you follow all of the legally mandated steps to ensure that all liability issues have been properly addressed.
The most straightforward business partnership terminations are accomplished by those entities that have started out with a well-crafted partnership agreement. If such a document exists, it will spell out the exact procedure that all involved parties agreed to at the time that the partnership was formed. The partnership agreement should contain provisions for how to manage finances, the continuation of the business, and client retention. Unfortunately, not every business has prepared itself for the eventuality of termination, and may require intervention by the courts or mediation by a third party.
Whether following pre-existing terms or reaching an agreement, legal termination requires checking with your state to determine its exact requirements regarding formalized dissolution documents. In most cases you will need a statement of dissolution, which usually spells out all parties’ expectations, responsibilities, and releases of liability.
In addition to drawing up the required documents, you will also need to close all joint bank and credit accounts, terminate all contracts and agreements, and pay all debts of the previously existing corporation. If the business will continue under a different set of partners’ names or under a single owner, new contracts will need to be created.
There are other important steps that need to be carried out, including addressing the needs of creditors, employees, and the government. Taxes will need to be paid, creditors and customers notified of the changes in the entities’ ownership, and when a business is entirely dissolving appropriate payroll taxes and employment tax forms will need to be addressed at the local, state, and federal levels.
Some locations require the publication of an official notice of dissolution of a partnership. This can be done in a local newspaper for a small fee, but it is also wise to contact all interested parties with whom your partnership has interacted directly.
Dissolving a business partnership is a legal process that requires experience and knowledge. For assistance in ensuring that you’ve addressed all applicable requirements, contact us today.