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HOW TO GET OUT OF A BUSINESS PARTNERSHIP

Posted:  Jul 18, 2022


When it comes to business partnerships, things can get a little tricky. Sometimes they work out great, but other times they end in disaster. Entering into a business partnership comes with many risks. If those risks aren't handled correctly, it could result in the dissolution of a partnership, tarnished relationships, and lawsuits. Before you go into business with other individuals, It's important to have a signed partnership agreement in place. Even if those partners are family or close friends whom you trust, it's important to know the proper steps to take if one or more of the partners loses interest in the business, if conflicts arise that can't be resolved, or if the business venture doesn't work out. In this blog post, we will discuss how to get out of a business partnership in a way that is fair for both parties involved.

 

The Process of Dissolving Your Partnership

Dissolving your partnership is not as simple as just stopping operations and closing up business. But it doesn't have to be overly complicated either. 

In a legal sense, the individuals involved are no longer partners when a partnership is dissolved. But the partnership will continue until the legal existence of the business is terminated, the business's debts are settled, and the company's remaining assets have been distributed. 

These, according to Stevens Law, are the five steps to take when dissolving your partnership: 

 

Review Your Partnership Agreement

Once you and/or your partner(s) decide to end the business partnership, you must review your legal partnership agreement. This is to ensure you follow the procedures outlined in the document for dissolving the partnership. There's usually a requirement in the partnership agreement for some majority vote to dissolve the business.

Consult with an experienced business attorney to ensure you properly adhere to the agreement's procedures. An attorney will assist you in avoiding opportunities for future legal conflict.

Discuss the Decision to Dissolve with Your Partner(s)

If you've been thinking about dissolving your business partnership, it's important to discuss your decision with your partner(s). You started the business with your partner(s) and should have a frank discussion with them about dissolving it. In the discussion, you'll want to cover the reason for dissolving the partnership, obligations, such as the business's debts and future liabilities, and how you plan to wind down the business. After all, dissolving a business is a big step, affecting everyone involved.

File a Dissolution Form

The next step in dissolving your business partnership is to file a dissolution form with the state your business is based. This form will officially dissolve your business partnership and end your legal obligations as a partner. Doing so makes it clear that you are no longer in a partnership or liable for its debts.

Notify Others

After filing the dissolution form with your state, you must notify anyone who does business with your company that the partnership has ended. This includes customers, suppliers, landlords, and employees. You'll want to send a formal letter or email informing them of the change and include the date of dissolution. You should also update your website and social media accounts. Finally, you'll need to change your company's name if it includes the name of your former business partner.

Settle And Close Out All Accounts

The next step is to settle and close out all accounts. This includes canceling any leases or contracts, transferring property ownership, closing all business bank accounts, and paying off any debts. Finally, distribute all assets following the partnership agreement or based upon whatever agreement you have with your business partners. Seek legal advice from a business attorney if there aren't enough funds to pay the partnership's debts and liabilities.

 

Can A Dissolved Partnership Be Sued?

Yes, a dissolved partnership can be sued during and after the dissolution process under certain circumstances. If your partnership entered into contracts with other businesses or individuals, you and your partners could still be held liable after dissolution. If the contracts don't include terms that absolve you and your partners of a breach if the partnership is dissolved, your partnership can be sued even after dissolution.

 

Types Of Dissolution Agreements

There are several types of dissolution agreements, and the type you choose will depend on the specific situation of your partnership.

  1. Agree to dissolve: If your partner(s) have lost interest, but you have not, as a partner, you can buy out the other partner's (or partners') shares (and vice versa).
  2. Buy-sell agreements: A buy-sell agreement is a legally binding contract that outlines how business partners can buy each other's shares in death, disability, retirement, or other circumstances. With such an agreement in place, the remaining partners in the business are protected against unwanted partners buying into the business or divorced spouses wanting parts of the business.
  3. New dissolutions: If you and your partner(s) want to end the company mutually, a partnership dissolution agreement can help you agree on the terms of dissolving the partnership. It specifies the duties of each partner and establishes timelines for ending the partnership. It also defines the roles each partner will play in the process.

 

Why Hire a Lawyer

If you and your business partner have decided to dissolve your partnership, there are a few important things to keep in mind. First, having an experienced lawyer on your side is important to help protect your interests. This is especially true if you're unsure how to divide up the assets and liabilities of the business. A lawyer can help you understand the legal process and implications of dissolving your partnership. 

 

A lawyer can also help negotiate a fair settlement with your partner and draft a partnership dissolution agreement that will be enforceable in court. Additionally, a lawyer can provide guidance and advice if you have any questions about your legal rights and obligations. Finally, if negotiations with your partner(s) break down, a lawyer can represent you in court and help ensure you get a fair outcome.

 

Steven and Company Law Corporation can help if you consider dissolving your business partnership. With decades of experience providing high-quality legal services, Steven & Company Law Corporation attorneys are ready to assist you in ending a business partnership. Contact us today!

 

 

 

 

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