A partnership can be formed either on a short-term or long-term basis. Sometimes, a company needs to be dissolved if the project has already concluded or when one of the partners no longer wants to take part in the operation of the business. When this happens, it is mandatory for both parties involved to terminate their partnership business agreement.
Partnership dissolution can either be done through a court decree, via the operation of the law or by an act of the partners involved.
Here’s how partners can go about it:
Set a Definite Time Frame to Dissolve the Partnership as Partners
In some cases, partners indicate the length of their partnership in their initial agreement. For example, the partners can agree to dissolve the company and the business after ten years. It could also be after the launch of a product that both partners are working on.
If the designated time is reached, then the partnership is now terminated, or if the goals have been met, the company will no longer exist. It is also possible for the partnership agreement to include a clause that states that if one of the partners violates any clause of the contract that it becomes null and void.
Dissolve the Partnership by Law
Once co-owners enter into a business deal and their partnership is sealed with a legal agreement, they are governed by contract law. As such, if there is any action that violates the contract performance, the partnership agreement would become null and void.
For example, if a forensic audit by a third-party expert like The Knowles Group reveals any misdeeds, the partnership will be deemed invalid. The contract would also lose its value if one of the partners dies or files for bankruptcy. Essentially, anything that could impede the effectiveness of the contract is enough to cause the dissolution of the partnership.
Get a Decree from Court of Equity
While any partner can request for the termination of the partnership from the court of equity, it will only be approved if:
- There is enough proof to show that one of the partners cannot perform their duties as co-owner.
- One of the partners is declared mentally incompetent.
- The partner violated any part of the business agreement.
- The partnership is no longer profitable for the co-owners.
- One of the partners was involved in misconduct that may affect the operations of the partnership.
What Should You Do to Dissolve a Partnership?
File Dissolution Statement With the Corresponding Secretary of State
Depending on your state, you and your partner should obtain a statement of dissolution from the secretary of state. This form is often available for download from their website.
Make sure to fill in the required fields, such as the name of the partnership, date of termination, and the reasons for the dissolution of the partnership. Don’t forget to sign the form, enclose the payment, and send it to the office of the secretary of state.
Send Notice of Dissolution
If your partnership has built a host of clients and creditors, it is prudent to inform them of the termination of the company. In some cases, the notice must also be published in local newspapers where the organization had its operations. Never forget this, as it can be used against you after the dissolution.
Even in the world of business, nothing is permanent. Partnerships born out of shared goals can end as well. Sometimes, it is for the best of both parties involved, especially if they no longer share the same vision for the company.