« »

Friday, April 29, 2011

Tips on ending a general partnership

Business partnerships involve two or more persons who are owners and in many cases officers of a company. This type of business relationship usually requires significant joint responsibility and collaboration on behalf of the partners for the partnership to succeed. When a partnership is broken it is called dissolution of partnership and the reasons and method for obtaining such dissolution are several.

Dissolution of partnership

A dissolution of business partnership can be caused by conflicts or irreparable differences between one or more of the partners. Additionally, an unsuccessful partnership may influence a partner's decision to leave along with a host of other possible reasons such as health, other commitments, passing away, loss of interest, dispute etc.

Disputing dissolution

Dissolution of partnerships can be contested in a court that has jurisdiction over the geographic area in which the business is registered and/or operated. Generally a court ordered dissolution takes place when an out of court settlement can't be reached. In such cases the judge will review the the positions of the partner(s) seeking dissolution and make a judgment based on his or her hearing of the case and review of the appropriate law. Judges may order a dissolution through appeal to a number of legitimate causes such as infraction of business terms of agreement, mental incapacity, or failure of a partner to comply with financial obligations within the partnership.

Ending business partnerships out of court

Most partnership laws within the United States require certain actions to be taken before a partnership is considered ended. Since partnerships are not incredibly formal types of businesses, the amount of paperwork that needs to be filed can be minimal if the ending of the partnership, and its terms are agreed upon by the partners without lawsuit. The required actions are as follows:

1. Give proper public and governmental notice as required by law
2. Pay all creditors what they are owed
3. Return Capital investments as originally invested by the partners
4. Distribute remaining assets and profits evenly among partners

The above steps may be more difficult than they sound especially if one partner goes bankrupt and leaves the remaining partner(s) with all the debt. For example, even though all partners are equally liable for debt in a partnership, a partner with no assets can't pay what isn't there after a bankruptcy. Before detailing tips to consider before ending a partnership, the following attorney presentation highlights the relevance of owner resolutions such as buying out of partners.

• Partnership agreements

Contractual partnership agreements are legally binding contractual documents that can be drawn up and signed during the formation of a partnership. However, it is not necessarily the case that such agreements can only be made at the beginning of a partnership and may help in the process of defining how assets in a partnership will be dissolved.

• Financial documents

Obtaining copies of all the partnerships financial documents at the time of dissolution is essential for determining each partners share of liability if any and also for supporting cases in which partners do not hold themselves accountable for their share of the partnerships debt.

• Avoid going to court

Going to court can be expensive, especially if all the partners decide they need attorneys to represent their interests. Amicable dissolutions are always more cost effective and the partnership laws generally put precedence on the interest of the partnership above the partners anyway.

• Refer to partnership laws

Understanding and referring to laws governing partnerships can be a good measure when one or more members ends their partnership. This is so for purposes of know how and legality. More specifically, the Business Partnership Act of 1958 and the relevant State law in which the partnership operates. The Unified Partnership Act is a more recent federal law that has been adopted by States in the regulation of partnerships.

• Know when to consult a small business attorney

There is a small difference from employing attorneys in the dissolution of a partnership and consulting a small business attorney for issue pertaining to the continuation of a partnership. For one thing it can more cost affective to receive attorney advice than have an attorney manage a case. Secondly, for partnerships that continue to exist after one or more partners leave the business there are on going legal concerns apart from the dissolution.

Ending a business partnership can be easy to do if the partners are agreeable, knowledgeable and capable of doing so. Since the legal formalities of partnerships are somewhat casual and/or limited, the dissolving of a partnership has the potential to be a straightforward process.

The dissolution process can be complicated by financial issues such as excess liability, and failure of one or more partners to agree to the dissolution and terms of dissolution. Consulting the IRS Closing a Business Checklist may also a good idea, however the information, steps and tips in this article are provided as a supplemental resource only, and do not replace the terms of agreement between business partners or the laws governing partnerships.


1. http://tinyurl.com/ctz8j (IRS)
2. http://findarticles.com/p/articles/mi_m1272/is_2676_130/ai_78256887
3. http://tinyurl.com/3wm3eog (Entrepreneur.com)