[vc_row][vc_column][vc_column_text font_color=”#000000″]Have you ever wondered what the most important part of a partnership is? Believe it or not, it is actually the DISSOLUTION, in your break up. Although you may not want to think about it, sometimes things ultimately don’t work out. The best contracts are drafted for a smooth transition out.

What is a dissolution?

A dissolution refers to the termination of a partnership and a complete cease and desist of all activities related to the partnership. Whenever a partnership dissolves, each partner shares equally when it comes to profit and gains; however this also applies to the losses from the business. Generally, there are no tax consequences but partners fo need to take account for all properties involved in the business whether or not they have appreciated in value over time.


Why does  a partnership dissolve?

Usually, partnerships will dissolve if any partner withdraws, becomes deceased, or becomes unable to continue their duties as a partner. There are a lot of other circumstances that could lead to partnership dissolution, which may include:

Loss of profits or declaration of bankruptcy
Illegal activities or violations
Merging of partnership with a larger entity
Changes of the business’ registration status (such as switching to a corporation)
Fulfillment of conditions that are stated deviously in the partnership agreement


What do you do when you dissolve a partnership?

Agree to dissolve

If one partner loses interest but you have not or vice versa, one partner can buy out the other partner out of the partnership. Agreements can and should be put in place when creating the partnership to help protect you and your partners in this scenario.

Buy-sell Agreements

Clearly lays out who can and cannot buy into the business should you or your partners decide to sell out, declare personal bankruptcy, or in the event of death divorce or disability.

New Dissolutions

Should you and your partner want to end the business venture all together, creating a partnership dissolution agreement can help you agree on the terms of dissolving the partnership – especially if the original written partnership agreement did not clearly lay out terms for ending the partnership. A dissolution agreement clearly specifies the duties of each partner, timelines for ending the partnership and roles each partner will play in the process. Creating a partnership dissolution agreement does not immediately end the partnership. You would still have time to settle any debts, legally end the business, and distribute any partnership assets and partnership property.


What is the final step to a partnership dissolution?

Statement of Dissolution

Once you and your partners have agreed on the terms of dissolving the business and all dissolution proceedings have come to a close, you must file a statement of dissolution. The instructions for completing a statement of dissolution vary from state to state, so it is important to follow the format that is laid out for the state where your business is located. Some states require businesses to file a dissolution statement before notifying creditors and resolving claims while other states require the dissolution statement to be filed after. Tax clearance is also required by some states, meaning all back-taxes must be paid prior to filing a statement of dissolution.



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