Dissolving a business partnership fairly
September 12, 2018
Sooner or later, many good ideas come to an end, or well-intended bad ideas run their course. This is simply the natural order of things, which we can observe in the natural world all around us.
However, when a business partnership ends, it is important to properly dissolve it in the legal sense, to avoid unnecessary complications. For many partners, dissolving a business is similar to a divorce, because it is legally simple to get into both marriages and partnerships, and much more complicated to get out of them.
If you and your partner are at the point where you must part ways, at least as business partners, then you must do everything in your power to make sure that the whole process is thorough and well thought out.
This may be much different than the way you got into the partnership, especially if it began as a dream in a garage rather than planned and plotted by a team of attorneys. A strong legal strategy for your “business divorce” will serve your interests both in the short term and in the long run, protecting your rights and priorities while you wind down the business, and ensuring that you don’t remain tied to a sinking ship months or years down the road.
Understand the nature of your partnership
Before you jump into dissolving your partnership, take a thorough look at your partnership agreement. While written agreements are not always used, most partnerships draft an agreement near the beginning of the business to protect both parties and lay out what each party can expect from dissolution. Once you understand what your partnership agreement has to say about dissolution, you can plan out how to meet these requirements.
In some cases, a partnership may form without any physical partnership agreement, in which case there is no specific course of action you must take to begin dissolution other than notifying your partner. Even if this is the case, it is usually wise to discuss the matter in detail with your partner, at least once you understand your rights and how to keep them secure.
Once you satisfy any existing partnership agreement, you should file dissolution papers with the state of New Jersey (or the state where you operate the business), so that you have legal grounds to prove that the partnership is truly over. In some instances involving lingering business debts, this is a very important step.
Settle the score and move on
Unless you are very fortunate, it is likely that you have a number of loose ends to tie up for the business, vendors, clients, suppliers, contractors, and many other parties that you work with.
It is important that all of the parties that work with your company understand clearly that your partnership is over. Do not put off notifying anyone who may have a vested interest in knowing, especially if you hold an account with them. Dissolving your partnership typically does not wipe away debts, so make sure that you settle these in some way before closing the doors completely.
A strong legal strategy that addresses each side of your business’s needs and obligations can help your business dissolution go smoothly and give you the tools you need to transition into the next season, with whatever it may bring.