When you’re looking to start a business, it is always easier to do it together with someone, through a partnership. Even if you had the business idea together or you just need someone to help your business grow and become successful. A partnership means more attention and resources for your business. But, what happens when things don’t work out. Dissolving your business partnership is the best solution. Whether your partner wants out or it would be best for you two to go your own separate ways, there are few things to take care of when wishing to terminate a business partnership. The truth is that dissolving such a partnership may be more difficult than getting a marital divorce, due to the financial interests that may be involved.
Before getting to the steps that should be done in the case of dissolving a business partnership, there are two primary advices you should follow, in order to avoid any problems. First of all, you should notify, preferably in a written form, your partner that the dissolution of your partnership will take place. If you don’t do that, you may risk being bound by actions by your partner, once the dissolution is completed. And, you should definitely talk with an attorney before you start any action, to get guidance and advices about how to do it right and clean. The simplest way to get this done is through an act at the mutual agreement of both partners. But this means to reach middle ground. Or it can be dissolved through a court decree or operation of law, if a mutual agreement cannot be reached.
• Define a term for your business partnership
The easiest way to be prepared for business partnership dissolution is by setting a term for your partnership, before it even starts. For instance, you can agree to keep the business partnership standing for 5 years, with the possibility to dissolve it once this period is completed. Or you can set certain terms that would have to be respected by your partner, not respecting the set terms leading to his expelling from the business partnership. Thus, a business partnership agreement should have a set of rules, making the partners susceptible to being expelled if they fail to respect the set rules. It is easier this way instead of having to deal with all kinds of problems, due to the lack of an agreement and drag your issue in the court. Of course, the business partnership can be terminated anytime if the partners involved commonly agree on this aspect.
• The operation of law can put an end to a business partnership
Every business partnership should have a legal agreement behind it, as a form of protection for both partners. As mentioned earlier, this agreement should contain rules and conditions for the partnership to be fully functional. Because of this agreement or contract, the contract law becomes operative in the case of a business partnership. This is why, in case something keeps the partnership contract from being valid and from performing as it should, the business partnership can become invalid through the operation of law. To understand better how the law works, you should know that a business partnership cannot be valid if, for example, the partners or one of them intends doing something illegal. Also, the passing away of one of the partners involved will also lead to the dissolution of the partnership, because the partnership is incomplete. And, of course, if one of the partners become bankrupt or the business partnership reaches this condition, it can be as well a good reason to terminate the partnership.
• Through a decree obtained from a court of equity
Any of the partners involved can apply for a decree to dissolve a business partnership at a court of equity. But, just as mentioned previously, you need to announce your partners of your intention to dissolve the partnership. This usually happens when one of the partners wants out or wishes to make the partnership invalid, but the other or others do not wish the same thing and there are disagreements concerning this aspect. Still, the court of equity will dissolve the partnership only if certain conditions are met. For instance, a business partnership can be dissolved if one partner becomes unable to perform due to the existent partnership. Another condition would be not respecting a part of the agreement by a partner or in case a medical entity declares one of the partners as being mentally incompetent. The partnership can also be terminated by court if it is unprofitable or if a partner’s misconduct affects the entire partnership.
• Make the dissolution official by filing a statement
The local authorities will have to know if a business partnership is terminated, so you will have to file a statement with the appropriate state secretary. This is a standard form that can be obtained from the website of the state’s secretary. Usually, this form requires you to fill in certain information about the business partnership, such as its name, the date when it was dissolved and the reasons behind its dissolution. Before filing the form, it will have to be signed and the requested fee to be paid. To close this operation, you will have to mail the completed form to the state secretary’s office.
• Divide any business assets
If married business partners can divide business assets in an uncontested divorce, then anyone can. Get a third party valuation to start. And make the commitment to keep this transaction on the side of logic, not emotion.
• The partnership’s creditors will have to be notified
If there are any creditors involved in your former business partnership, they will have to be personally notified about the dissolution by you. You may have business assets that need to be divided. They will have to know that the partnership does not exist so that they will stop crediting the partnership. You can also notify the dissolution of your business partnership with the help of a local newspaper, which operates in the area, as an easier way to announce any parts involved fast and easy. Still, it would be better to send a personal notification if possible, to make sure that the news reached the right parties involved and that everything is set after the business partnership ended.