There can be many reasons why you might want to dissolve your business, and there are many different legal requirements which need to be met before it may be dissolved. It is not as simple as closing the door towards any partner who wants out from the partnership business.
The following information should offer sufficient guidance to enable you to smoothly dissolve the business.
Go Through Your Partnership Agreement
Before dissolving the partnership, you need to go through the clauses of your partnership agreement, such as how you and your partner will be apportioning the profits, which liabilities would be met by each partner, at what amount would the realization of assets be made, and who will be responsible for disposal of assets. All of these questions are usually addressed in the partnership agreement.
If required, you can involve any legal counsel to ensure you meet with the legal requirements of the partnership agreement. A partnership agreement is an essence of the partnership and all partners are liable to comply with it fully.
What If The Partnership Agreement Is Not Conclusive?
It is possible that you failed to mention the process of dissolving the partnership in the partnership agreement. If that is the case, then you need to get help from your legal counselor. You also need to figure out how you want to proceed with the dissolution process, and the input of every partner is required in this case to divide up all of the responsibilities among all the partners.
Usually the assets are apportioned in the same ratio as the ratio of profits. However, it is always advisable to agree on terms of dissolving the partnership before the start of the partnership business. Regardless, the help of legal counsel should always be sought out when the partners disagree with any point.
Dissolution Agreement Should Be Drafted And Signed By All Partners
The dissolution agreement contains all the terms of dissolution agreed by partners before starting the partnership business. It contains important terms about realization of assets and liabilities and apportioning of the profits.
It also contains terms as to how partners will dissolve their equity interests. The termination of any business is a lengthy process especially when there are more than two partners involved, and when there are numerous stakeholders with vested interests in the business.
You need to specifically consider what obligation you owe towards the government in terms of taxes or any due penalties.
Since any partner’s liabilities towards partnership no longer stand after dissolution, therefore every partner needs to assume certain responsibilities at the time of the dissolution which may include payment of taxes, payment towards creditors, legal liabilities towards banks, and settlement of all due commitments.
You Need A Buy-Sell Agreement If Any Partner Wants To Keep The Business
In case of death of any partner or if any one partner wants to move out of the business and the other partner wants to keep the business, then a buy-sell agreement would need to be drafted.
It will contain terms of how the assets would be transferred to existing partner and which liabilities would be assumed by the partner staying in the business. All terms need to be drafted in the agreement to protect the rights of each partner affected by this buy-sell agreement.
It is possible that one partner wants to dissolve the partnership business because of any persuasive reason while the other partner does not agree with him. In such a case, a partner who wants to dissolve the business should consult a legal counsel and pursue the case by obtaining a ruling from the court.
If the court agrees to the dissolution on grounds of a persuasive reason, then the dissolution is done under the supervision of a court representative.
Notify All Stakeholders
It is important to inform every stakeholder about the dissolution of the business before dissolving it.
A legal notice must be given within the stipulated time as per law. The parties to whom a legal notice must be sent include customers, creditors, banks, and government authorities.
This notice is important to let the stakeholders know that the business will no longer remain operational and partner’s liabilities would soon end with the dissolution.
If any party has any objection to the dissolution with respect to any claim, liability or commitment, then that partner must notify the same before the dissolution process is carried out.