A business partnership is when two or more people join forces to launch a business and share the subsequent profit or losses. Based on a particular type of business, there are different types of partnership agreements to manage the obligations and liabilities of every single partner. When partners launch a new venture, they are optimistic about it and fail to acknowledge the fact that the partnership may not work out, resulting in dissolving business partnerships.
Business partnerships coming to an end are more frequent than most people think. Changes in business circumstances, the retirement of a partner, business disputes, etc. are some reasons that cause a partnership to end. Ending a business partnership is financially and emotionally painful for those involved. This makes it really important to have a dissolution clause in the partnership agreement to make the process hassle-free and convenient.
Key Considerations When Dissolving a Business Partnership
Different reasons can lead to an end of a business partnership and it isn’t negative every time. A dissolution clause makes things simpler as all members have already agreed upon a procedure to end the partnership in case things don’t work out.
Still, dissolving a business partnership is legally complicated and if you are planning to file a partition action in California to end the agreement with your partners, you have to consider some important things before it.
Have a Solid Exit Plan in Place
You must have a proper exit plan to end your partnership in a smooth manner. It allows you to weigh the risks related to various actions and gives you an idea of what to expect when you decide to end your business partnership.
A proper plan will outline the roles and responsibilities of partners, in case of dissolution, and make sure everyone is aware of them. If there is no exit plan, you can end up taking the wrong steps which can lead to complicated and costly breakdowns in the partnership.
Respect Your Business Partnership’s Obligations
You will have to fulfill all obligations that you owe to the business partnership even if you decide to end it. Understand these obligations properly and make sure there are no misunderstandings between you and other partners.
This will allow your partners to continue running the business smoothly even after you end your membership. Based on the type of dissolution, partners have several obligations like payouts and personal guarantees that they must fulfill after ending the partnership.
Have Clear Reasons to End the Partnership
Dissolving a business partnership will financially affect you as well as the overall business. You need to ensure that you are leaving because of the right and legal reasons. Consider your family situation, employee well-being, finances, etc. before making the decision.
Usually, a partner ends the agreement when the term has expired, if he wants to retire, bankruptcy or death of a partner, court orders, or business loss. Having clear reasons for ending the partnership will make the legal process simpler for everyone involved.
Thoroughly Go Through the Dissolution Clause
Consider whether a partnership dissolution agreement is in place to govern the procedure. If an agreement is there, then you will have to follow the steps mentioned in it to end the business partnership.
If there is no dissolution agreement in place, then you will have to follow your State’s Partnership laws. Get in touch with a partition action lawyer who’ll help you follow the dissolution agreement or proceed according to your state laws.
Notify Partners About Your Intention to End the Partnership
The first step before filing a partition action to end your business partnership is sending a written notice to your partners about your desire to leave. Send the notice to each remaining partner in the business and specify clear reasons for ending the partnership.
Other than partners, you also have to notify all organizations and third parties with whom your company does business. If you do not notify third parties about the partnership dissolution, it can expose other partners to debts and liabilities if outgoing payments and subscriptions are not stopped.
Make Sure All Assets Are Taken Care Of
If the business decides to stop operations after the partnership has ended, all existing liabilities and assets must be taken proper care of. Ensure that all assets are dealt according to the partnership agreement or in accordance with your state laws.
Hire an independent financial valuer to know the exact value of all assets and confirm which partners are going to pay the outstanding debt. Also, all joint accounts under the business partnership name must be deactivated or closed.
Consider What Happens After the Partnership Dissolution
The period after you dissolve your business partnership is quite demanding. Ongoing obligations like settlement of debts and distribution of assets can last for several years.
No matter if this takes place according to the dissolution agreement or according to court order, fulfilling these obligations will take time. To make sure your interests are protected and you have proper legal assistance, hiring a partition lawyer is vital.
Conclusion
Whenever a group of individuals form a partnership to run a business, they are optimistic and think of achieving success. However, that’s not always the case as disputes can arise leading to the dissolution or end of a business partnership.
Whatever the reasons might be, it’s a complicated legal process, and working with a partition lawyer is recommended to ensure a smooth, hassle-free dissolution process. However, you should first try to resolve all disputes peacefully among your partners, and if things still don’t work out, then consider dissolving the business partnership.
