Dissolving partnerships can be very easy or difficult, depending on the internal circumstances of the partnership. If an agreement is already in place and everyone agrees to it, then the process will be expedient and just a matter of checking boxes. However, if the internal circumstances of the partnership aren’t unanimous, then there may be a bit more that will go into the dissolution of your partnership. We recommend you speak to a lawyer at the beginning of this process, as the dissolution of a partnership is a legal affair.
If you already have a dissolution agreement baked into your partnership agreement, then you need to follow the terms of that agreement. If your partnership agreement doesn’t include any mention of dissolution procedures, the process is liable to be more complicated. Since everyone in a partnership has to agree to the terms of dissolution, negotiations can become a tough area. You’ll need to work with the other partners and bring in third-party legal representatives to come to terms that all members of the partnership can agree to. You may find consulting with legal counsel to be helpful at this stage of the process.
As you dissolve your partnership, you need to thoroughly make sure that you’re complying with local and federal laws. The IRS requires that a partnership files a 1065 form, Return of Partnership Income Form, for the year that operations cease. You may need to file other forms to the IRS of local state agencies, depending on where your partnership is located.
Besides dissolution agreements and filing the appropriate forms with the government, there is the whole process of actually shutting down the partnership. This can be a large logistical undertaking and will require coordination with all parts of the organization. There will be many accounts that will need to be closed (e.i. vendors, insurance, banking), and the distribution of remaining assets once all debts and liabilities have been settled.
The dissolution will outline the organization of funds and the priority of payments. Debts will need to be closed, licenses/certificates will need to be canceled, and physical assets will need to go somewhere. You may have contractual agreements that require you to continue payments until the contract expires or pay a cancellation fee. Severance, healthcare, and other employee benefits will need to be organized and carried through for the minimum amount of time guaranteed in employee contracts.
Informing stakeholders in a timely manner is also important so that you end on the best note possible with employees, suppliers, and clients. Giving stakeholders enough time to adjust and pivot away from your organization will be helpful for affected parties. A smooth transition can leave connections and contacts in good standing.
Dissolving a partnership is a business and legal affair. It can require negotiation, legal oversight, and financial attention. Whether you’re looking to dissolve your current partnership or would like to have a dissolution agreement drawn up for a new partnership, Fenton Law Group can help. For more information on how hiring an attorney can help you or your organization with dissolving partnerships, fill out our online contact form today.