When you commit to a business partnership, you are not making a lifetime
commitment like marriage. Nevertheless, some business dissolutions can
be as messy as divorce. To avoid legal trouble, follow the steps below
when you dissolve a business.
Step 1: Consult Your Partnership Agreement
Unfortunately, a written partnership agreement is not required in the state
of California. Fortunately, most business partners draft one anyway. If
you and your business partner were lucky enough to create this legal document,
it should have all the answers you need when it comes to dissolution.
If not, you may have to follow the guidelines set out in
California’s Uniform Partnership Act. While the legislation may not consider the unique aspects of your business
partnership, it will protect you from unfair distribution of debts and assets.
Step 2: Make the Decision Unanimous
When you dissolve your business, you’ll want to hold a vote between
you and your partner(s). If the business is over, this vote should be
unanimous or at least win majority consent. Write down the results of the vote.
Obviously, dissolving a partnership is much more difficult when one person
doesn’t want to do it. If you drafted a partnership agreement, you
may have discussed ways for one partner to buy out another and keep the
business going. If not, you may need to hire a
business law attorney to guide you through the process and help you adhere to the Uniform Partnership Act.
Step 3: Wind Up
Once you decide to dissolve your business, or at least your half of the
partnership, you will need to settle debts and distribute assets. This
process is known as winding-up and includes the following steps:
- Completing outstanding work
- Paying debts
- Selling and distributing assets
It is important to leave your business in a good place, even if it isn’t
going to exist anymore. To do so, finish any work in progress and pay
back your creditors. In the event that you fail to pay your debts before
distributing assets, you could be punished for violating the Uniform Partnership
act. Avoiding this is easy. Just
square up before you split.
Step 4: Do Your Paperwork
Give your creditors, customers, clients, and suppliers written notice that
your business has ben dissolved. This isn’t a legal requirement,
but it is the most professional thing to do.
If you filed a Statement of Partnership Authority when you founded your
business, you’ll also need to file a Statement of Dissolution with the
California Secretary of State. These forms are both optional, so if you didn’t file the first,
there’s no need to file the second. In fact, you can’t actually
file a Statement of Dissolution if there is no Statement of Partnership
Authority on file for your business.
Step 5: Death and Taxes
Nothing in this world is certain, except for death and taxes, and tax forms
are certainly required when you dissolve your business. The California
Franchise Tax Board requires a final tax return for your partnership.
You must also pay any taxes that are due. When you fill out your IRS forms,
be sure to check the “final return” box. If your business
allowed you to collect sales tax, file a Notice of Close-Out with the
California State Board of Equalization.
Troubleshooting
These steps may seem easy, but life doesn’t always go as planned.
If you run into any hitches along the way, our business lawyers
are here to help. Whether we assist with mediation or uphold the provisions of the Uniform
Partnership Act, our team at Allen, Semelsberger & Kaelin LLP is dedicated
to providing effective, efficient counsel for all clients.
If you want to dissolve your business, give us a call at (888) 998-2031
and you’ll be done in no time. Start with a free case evaluation
today.