How to Dissolve a Partnership

How to Dissolve a Partnership

Business partnerships are formed in order to increase a company’s chance of success, but sadly these partnerships don’t always work out. If you are finding that you and your business partner are struggling to get along and work together, it may be time to consider alternative options. If mediation doesn’t work, you may need to dissolve your partnership.

How to Dissolve Your Business Partnership

Before you make the decision to dissolve your partnership, consider how the dissolution will affect your employees. Will any of them lose their jobs as a result of the dissolution? Will there be downsizing or instability in the company?

You also need to think about how it will affect your clients. Many clients could lose faith in your company if they see your business partnership dissolving, which could affect your bottom line.

If you decide that it’s in your best interests to dissolve the partnership, here is how to go about it:

Step 1:

Review your partnership agreement -- When you went into business together, you no doubt signed an agreement. It’s time to look over your agreement--with the help of a lawyer--to ensure that all of your legal obligations are being met.

Step 2:

Research local laws -- Your state and/or country has laws regarding business contracts. You’ll need to research into what laws affect the dissolution of your partnership agreement. You may need to remain a partnership for a certain amount of time, or you may need a certain number of partners in order for your company to be a legal entity. You need to find out what ramifications there may be for your dissolving your partnership.

Step 3:

Notify taxation entities -- You will need to inform the IRS and any local or state taxation entities that you are dissolving your partnership agreement. This will ensure that no taxes or debts are accrued by the departing partner once the partnership is dissolved.

Step 4:

Fill out the forms -- If you are just dissolving your partnership, you’ll simply need to fill out a notice of dissolution and file it with your municipal office. If the company is going to be dissolved as a result of your partnership breaking up, you’ll need to notify your local, state, and federal offices as well.

Step 5:

File a Statement of Dissolution -- This statement will be filed with the Secretary of State of your company’s formation. You will need to update all of your reports and taxes and pay all fees before you can file the statement.

Step 6:

Inform the correct people -- Once you have filed the Statement of Dissolution, you have 90 days to inform all of your clients, suppliers, and employees of the dissolution.  You must also inform creditors that the company (if it remains operating) will no longer be responsible for the debts of the partner leaving. If the company is dissolving, you must inform creditors of the dissolution in order to ensure that debt is collected from the person to whom it belongs.

If you can dissolve your partnership amicably, it will make for a much smoother transition. It will be much better for the sake of your business, so it’s always worth trying to go the friendly route.