General partnerships involve more than one person as the owner. The partners are responsible for profits, losses and liabilities and are required to fill out legal documents.
If the partnership breaks up, the dissolution process becomes complex compared to sole proprietors because of all the assets, taxes and paperwork involved. On the other hand, sole proprietorships, those individuals responsible for their own businesses, are not a legal entity but are still accountable for profits and losses. Their dissolution process is simpler, especially when the owner dies because the business will no longer exist.
If you decide to become a business partner, address issues that can lead to partnership dissolution early to avoid conflicts later, such as the following:
- a partner’s resignation,
- a partner’s personal bankruptcy
- an agreement for a partnership dissolution set at certain date
- unlawful practices
- a partner is found legally incompetent or incapable
- a court finding a partner’s arguments concerning the operation a detriment to the business’ success
However, all of the drama developed from misunderstandings and disputes over whether or not and how the business should continue can be eliminated by forming a partnership dissolution agreement. Templates for these agreements can be found at online sites such as LegalZoom.com. Here are a few steps the legal document preparation services company suggests taking during the breakup.
- Ensure duties of all the partners are performed before signing the dissolution agreement.
- Determine how the dissolution will affect contracts, leases and loan agreements
- Make sure local, state and federal tax agencies are informed
- Investigate whether the agreement will need a witness or a notary
- Go back to the original government agency you registered the business with and file a statement of dissolution, also known as a certificate of cancellation.
When deciding to form a business partnership, make sure you negotiate the continuation of the business and how it will advance, such as a sole proprietorship, and make sure the terms and the continuation of the business are clearly stated in the original partnership agreement.
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