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What is the best way to dissolve a partnership agreement?

Businesses close for any number of reasons. If you believe personality differences in your partnership are causing your business to hurtle into the red, it may be time to dissolve the partnership. What is the best way to approach the subject while protecting investors and clients?

The answer may lie in your partnership agreement, or lack of one. To protect yourself and the business against future legal action, it is crucial to follow local laws and any signed contracts to settle all matters related to IRS requirements and Commonwealth requirements.

What are your options before dissolution?

Your partnership agreement may include language about dissolution. If your business partnership was not based on a written agreement, the dissolution could be relatively complicated.

These agreements make it easier to separate who owns what or the consequences for bad business decisions. Regardless if an agreement exists, both partners may carry liability for debts until the bond is dissolved.

Before you legally dissolve the agreement, you can pursue the following options within the business model:

  • Revisit the agreement and change the balance of power
  • Lawfully buy out your partner’s shares or sell your shares to others
  • Pursue mentorship or mediation through a neutral third party if there is no written agreement

Finally, you may need to dissolve your legal bond. This may be the only solution to resolve deep-seated personality differences or financial irresponsibility.

What is required for a legal dissolution?

Before filing federal and state paperwork, or meeting with investors or any board of directors, be sure to settle all matters between the two of you. This includes the following:

  1. If paperwork exists, be sure that all stated duties are completed.
  2. The business is appraised or valued to later determine the percentage of ownership
  3. Review all leases and loan agreements to prepare for investor impact.
  4. Assemble a comprehensive list of clients, suppliers, and permits

Despite personal disagreements if you present a thoughtful, united front to interested parties you can ease the transition. If you are interested in taking over the business rather than closing it, these actions can show interested parties that they can now depend on you in the future.

Doing business comes with risk, but if your partner let you down, dissolving the partnership can save your reputation. One person’s poor decisions do not have to shut your doors forever.

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