Making the decision to dissolve a business partnership is rarely easy, particularly if bad blood has developed and the partners can simply no longer work with each other. However, there are other circumstances that can lead to dissolution being the best option, such as one partner wanting to retire or even simply losing interest in the business venture.
Regardless of the reason, dissolving a partnership is a complex process and requires some sound planning. The following are some ways to make it more manageable:
Think about dissolution when you start a business. At the outset of your new venture, your partnership agreement, which you should put together any time you start a new business, should include a strategy for potentially dissolving the business. It’s much like a prenuptial agreement, in that it should outline a process for dissolving the business, dividing assets and sharing responsibilities if you and your partner should decide to move in different directions.
Take stock of what needs to be done before dissolution. Generally, a business will always be in a state of flux. Some projects will be in progress, others will be coming due and there’s probably no “perfect” time to dissolve. Go over any contracts, leases and other documents pertaining to your business to determine what may be impacted by the dissolution, and how. Make sure the company is up to date on invoices and other payments.
Understand how dissolution can happen. A partnership may be dissolved via several different avenues. It can happen voluntarily (in writing), involuntarily, due to actions committed by a partner against the interest of the business, or through the legal system in the event that the partnership has been involved with any sort of illegal practices.
Avoid unnecessary conflict if possible. To be sure, not all partnerships dissolve peacefully. There may be conflict regarding partner shares, profits, management changes, risks, losses and even intellectual property related to the business. A dissolution strategy in an initial partnership agreement is a great way to prevent unnecessary conflict in the future.
Move forward responsibly. If your business is dissolving along with the partnership (and even if it isn’t), you’ll need to keep your customers, suppliers and any businesses you have partnered with in the loop. If the company will remain active, you will need to be sure to remove the departing partner’s name from documentation pertaining to the business. You may also need to restructure the company, as an LLC, for instance, or perhaps a C corporation.
The dissolution of a business partnership is not likely to be easy, but with a little preparation, you can make the process go as smoothly as possible for you and your company. It’s important to consult an experienced business and corporate law attorney to ensure you are covering all of your bases when it comes to this important issue.
BoltNagi is an established and respected business law firm serving businesses and organizations throughout the U.S. Virgin Islands.