Entering into a business partnership can have many benefits. Partners can pool their knowledge, resources, and contacts to achieve their maximum potential. There may come a time, however, when partners need to go their separate ways. Whether amicable or contentious, the dissolution of a partnership can be complicated and must be handled with care.
Withdrawal of a Partner
The process of dissolution will depend on whether one partner is leaving the company, or the business is being terminated entirely. If one partner wishes to end their involvement in the business, it is possible for them to sell their shares, either to the other partners or to another party. A buy-sell agreement among the partners dictates who can buy into the business; this is essential to protect the remaining partners from unwanted affiliates, as well as divorced spouses who may try to claim some share of ownership.
Terminating the Business
If the partners intend to shut the business down, the original partnership agreement may have an outline of how to proceed. If it does not, or if the agreement needs to be amended or clarified, the partners can draw up a partnership dissolution agreement. This document divides the responsibilities among the partners and sets deadlines for when the business is to be officially shuttered. The business will remain active until operations cease and the business’s assets have been distributed, allowing the partners to tie up any loose ends. The partners must also file a formal statement of dissolution with the agency that licensed the business. Each state has its own procedure for properly dissolving a business that must be followed; if not, the parties may be vulnerable to legal action.
It is important to note that filing for dissolution does not absolve the business of debts, including taxes and amounts owed to the partners themselves, and these will need to be paid before the business can officially close. The partners must contact their creditors and give them a date by which outstanding claims must be received. If the business does not have enough assets to cover all of its debts at the time of termination, the partners themselves must make up the difference. If there are remaining assets, they must be liquidated and accounted for before being divided among the partners based on each partner’s share of the business.
Having a strong partnership agreement in place can make the process of dissolution much smoother. When interested parties decide to enter a partnership, they should take the time to consider how to handle multiple dissolution scenarios, including when one or more partners want to withdraw from the business or when the business is closing. The partnership agreement also specifies whether the business is a general partnership or a limited liability partnership, which determines how liable the partners are for the actions or inactions of another partner. This liability may still hold in some situations after the business is dissolved, so it is important to clarify at the outset.
Philadelphia Business Attorneys at Harty Law Group Provide Innovative Solutions for Complex Dissolutions
The business attorneys at Harty Law Group have the knowledge and resources to handle complex partnership dissolution cases and contract disputes. Armed with years of experience and the latest technology, we are committed to protecting our clients’ interests in any scenario. Located in the heart of Old City, we provide comprehensive representation to clients throughout the Philadelphia area. Call us today at 267-383-3899 or contact us online to discuss your case with a Philadelphia business attorney.