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How to Dissolve a Partnership

No matter how well a business is run or how successful a business becomes, there are times when personal conflicts with business partners might arise, or a disagreement about the direction of a company can occur. Many times these disagreements are little more than a temporary setback and they are soon resolved with proper communication. But there are times when situations arise in a business environment that are not easily resolved and can have a lasting impact on the people involved. These situations can affect the cohesiveness of a business and its ability to operate in a functional matter, and it can even drive a business to the point of closure. These types of situations are unfortunate, but the fact is that they are not uncommon in the business world.

Partnerships are Susceptible to Internal Conflicts

Perhaps no other business structure can be affected by internal conflict as much as a partnership. The very structure of a partnership relies on the interdependence and cooperation of the partners, and if anything impedes this cohesion, it has a ripple effect among all of the partners and the business as a whole. Because of this, if conflict between partners becomes irreconcilable and the business is in jeopardy of shutting down or is already in the process, making sure that individual liability for the partnership ends through dissolution is necessary to protect individual assets.

A Buyout Agreement Might Be the Best Solution

It is important to discuss the option of dissolving the partnership with all of the other partners. If there is an irreconcilable conflict between two partners in a larger partnership, a buyout agreement might be a simple solution to the problem for all involved, especially if the business is still functional. However, if there are only two partners or if the business has suffered irreparable damage due to the issues at hand, dissolving the partnership might be the only alternative.

Dissolution Requires Dividing Financial Responsibilities

The partners will need to vote to dissolve the partnership, and once that has been finalized, the responsibilities of each partner regarding debts and potential future liabilities needs to be addressed. This is an important step because all of the partners are personally liable for the debts and liabilities of each partner.

For Instance...

If one partner pays off his share of the partnership's debt but another partner does not, creditors can seek action against the first partner’s assets to satisfy the debt owed by the partner that did not pay.

Making the Dissolution Public Protects against Future Claims

Formally filing the dissolution paperwork should be the next step. This gives formal notice that the partnership is terminated. Filing a notice of dissolution in the local newspaper is also an important step that makes the termination public knowledge and informs creditors that the partnership will no longer be able to incur debt.

From that point, liquidating partnership assets to pay off business debt is the next step and then distributing any assets remaining among the partners. Dissolving a partnership is never a pleasant process, but sometimes it is the only logical course of action for a business on the path to failure.