Dissolving a partnership or LLC isn't something people generally look forward to doing, especially if the business has performed poorly or if the partners had difficulty working together.
However, partnerships also can dissolve for other reasons, such as the partners' being ready to start a corporation or because one of the partners wants to retire.
Sometimes one partner buys out the other, but if it isn't in the cards, partners must dissolve the partnership. Regardless of how the partnership ends, having someone draft a partnership dissolution agreement is often the first step in dissolving the partnership.
The Partnership or LLC Dissolution Agreement
Partnership or LLC dissolution agreements are often used where the original agreement creating the partnership is silent as to how the business should close. If the agreement that started your partnership contains a partnership dissolution clause, then you're in great shape because you can do a partnership dissolution without creating a separate dissolution agreement.
If there's no partnership agreement, if the partnership agreement's references to dissolving the business are vague, or if there's nothing in your partnership agreement about how to dissolve the business, getting a partnership dissolution agreement makes sense.
A business partnership dissolution agreement removes many of the risks that come with dissolution of the partnership. There are many steps in dissolving a partnership, and the steps are different in each state, so check with your state to see what is required. A company dissolution agreement specifies what the partners must do and lists each partner's responsibilities. It also can help ensure that there's no liability among the partners and that there's a fair division of the partners' liability to creditors.
Partnership Dissolution Agreement Terms
The terms of a partnership dissolution agreement are different for each partnership. If, for example, the partnership has a surplus of supplies, or if it owes many different creditors, the partnership dissolution contract has to address those issues.
The essential terms of a partnership dissolution agreement are the:
- Date of the agreement
- Names and contact information of all the partners
- Full name of the partnership and its main address
- Type of business the partnership is engaged in
- Partners' agreement to dissolve the partnership
- Dissolution date of the partnership
- Plan for how the partners will dissolve the partnership, which includes who will:
- Prepare and present the required papers, such as a statement of dissolution, to the state agency or secretary of state.
- Contact vendors, creditors, and customers, and what method of communication the partner will use
- Cancel all licenses
- Contact the landlord
- Discontinue all services, such as internet and utility services, including gas, electric or oil, water, and sewer
- Contact the local town office.
- Terminate mail service and give forwarding address(es)
- End trademarks and copyrights, if applicable.
- Close safety deposit boxes, storage facilities, and savings and checking accounts
- Take down your website a few weeks after you post that the business is closing.
- Contact customers on social media that your business is closing
- Plan for how the partners will liquidate the partnership, which includes:
- Gathering assets and selling or distributing them among the partners
- Specifying which partner is responsible for each part of the liquidation process and if they're entitled to compensation for "winding up" or liquidating, the business
- Paying debts to creditors
- Hiring an accountant to create a partnership statement for the partnership and any state agencies, if needed
- Discussing any tax issues with the accountant
- Release of all partners from liability to the other partners
- Signatures of all partners, with date and notarization, if required.
Dissolving a partnership is often complicated because the partners have many administrative tasks to do. These tasks are necessary to close the business and end your obligations to others, such as utility companies and vendors.
You may want to hire an attorney to prepare your agreement to help ensure you don't miss any critical details. Either way, a partnership agreement protects you and your partners and helps create a path for an amicable end to the partnership.