There are a number of reasons to dissolve a partnership. Whether business is not going well, you can’t get along with your business associates or you are ready to retire, it might be time to end your partnership. Before making the final decision, you should consider whether dissolving the partnership is the only option. Is there any other way to alleviate the problem? Could you buy out your partner, or simply sell your share allowing the business to continue under different management? Dissolution generally is not a simple process, and if it is your only option, it’s important that you be aware of some important issues.
Most partnerships operate pursuant to a partnership agreement. Sometimes, these agreements include provisions for dissolution. If this is the case in your partnership you should follow these provisions closely to avoid later disputes. If there is no partnership agreement, you should try to formulate a dissolution strategy with your partner(s), following the guidelines set forth by statute and California partnership law. Formulating a strategy amicably might not be possible, especially if the dissolution is the result of a disagreement or personality clashes. In that case, you have the option to pursue alternative dispute resolution such as arbitration or mediation, as well as the ability to litigate to force dissolution of the partnership. Litigation is expensive and time consuming and therefore might not be the best choice.
When preparing to dissolve a partnership you should collect all of the money owed to the business and pay any debts the partnership may have in an effort to wind up the business. You should discuss the dissolution with the partnership’s accountant, and also inform the IRS and the state of the dissolution for tax purposes. It is also a good idea to consult with an attorney regarding dissolution paperwork and tax matters, as failure to file properly can result in penalties.
You should also ensure the dissolution is made formal to avoid any confusion in the future regarding your relationship with your partner(s). In order to do this, you must file a Statement of Dissolution with the State of California. Formally dissolving your partnership will protect you from debts and contracts entered into by your former partner(s) after the dissolution is final.
Depending on the type of partnership and business you are involved in, different or additional concerns may need to be considered. Partnership dissolution is not as straight forward as it may seem, especially when there is animosity among or between the partners. In order to handle matters appropriately, and to avoid costly litigation and potential liability down the road, you should talk to an experienced business attorney.
Please feel free to contact the business attorneys at Schneiders & Associates, L.L.P. for assistance in planning for or executing a partnership dissolution or buyout.