A business partnership can dissolve for a variety of reasons, ranging from a falling out between the partners to one partner deciding that they can no longer continue working with the business for personal reasons. The business itself might go under, or the remaining partner might buy out the exiting partner's share, but either way, there will be major changes to both the business structure and the lives of the former partners. To make sure that things go as smoothly as possible when dissolving a business partnership, there are several things that should be done as early as possible.
- Skill level:
Contact the office of the Secretary of State or consult an attorney in your state to make sure that there aren't legal ramifications for dissolving the partnership. Though not all states have specific legal requirements as to how the dissolving of a partnership must occur, those states which do have specific requirements also have penalties which can be applied if the proper legal channels aren't used.
Cancel any licenses, permits and certifications that were received in the names of both partners. If one partner is going to continue the business by themselves or the business is going to be purchased by a third party, all licenses and permits will have to be purchased again after the business partnership has been dissolved.
Cancel or change any joint bank accounts that pertain to the business, removing the exiting partner from access to the account completely. Depending on the number and types of accounts it may be easier to simply close them and open new business accounts with only the remaining partner (or purchasing third party) having account access.
If the business was operating under its own name and isn't going to continue operating after the partnership dissolves, paperwork will need to be submitted to the county clerk's office so that the "Doing Business As" claim that your business established can be abandoned. Should the original paperwork claiming your business name within the county be linked to the departing partner, then the paperwork will need to be refiled along with the other licenses and permits in Step 1.
Make sure that both the IRS and any creditors are aware of the split and that all taxes and debts for the business are paid on time even if the business does not survive the partnership's end. Should the business be continued after the partnership dissolves, make sure that all financially-interested parties are updated with new contact information as needed.
Draw up a contract that specifies exactly what assets are being purchased if one partner is buying the other's portion of the company. This should be very specific, including the amount that is being paid as well as what exactly the purchasing partner will be getting in exchange for their money. If any royalty rights or other aspects are being retained by the exiting partner, then this should be included as well.
Tips and warnings
- Have your company's attorney and accountant review all contracts and transactions so as to make sure that there aren't any unforeseen problems in dissolving your partnership