All good things eventually come to an end.
Whether you have reached an impasse with your partners or it’s simply time to move on, you may find yourself needing to dissolve a business partnership.
Why Do Partnerships Dissolve?
You may need to know how to dissolve a partnership in Texas for a number of reasons. Most often, dissolution is just a natural phase in the life of a partnership. For example, you may need to dissolve because:
- A partner has passed away or wants to retire,
- The purpose of the partnership has been fulfilled, or
- A partner wants to leave to pursue other ventures.
In other situations, you may need to dissolve due to a partner’s unscrupulous behavior or as a result of partnership disagreements.
You may also need to understand how to dissolve a business partnership if your business is unsuccessful and you need to shut it down. Or if your partnership is very successful, there may come a time when you need to reorganize your business structure or you decide to sell to a larger company.
How to Dissolve a Partnership
Dissolving a partnership is complex and involves several steps. Your attorney can walk you through the process and make sure you comply with all legal requirements.
Read Your Partnership Agreement
Dissolving a business partnership is easiest if you have a partnership agreement. A detailed partnership agreement will govern things such as:
- Circumstances where a partnership may be dissolved;
- How partners will decide whether to dissolve;
- How the partners will pay outstanding debts and taxes;
- How the partners will divide remaining partnership assets and funds;
- What the partners’ responsibilities will be in winding up the partnership; and
- Whether and on what terms other partners can continue with the business after the partnership is dissolved.
In many cases, one or more partners may continue to operate the business after the partnership dissolves or a partner leaves. The partnership agreement should also address this contingency, including things such as:
- How to calculate the value of the partnership;
- How and on what terms the departing partner will be compensated for their share of the partnership;
- How the departing partner will be removed from partnership obligations such as contracts and leases; and
- How remaining partners will indemnify a departing partner if the partnership defaults on any continuing obligations.
It is a good idea to review your agreement with a partnership attorney. They can help you understand its terms and what they mean for you.
If you do not have a partnership agreement, your attorney can help you negotiate a separation agreement with your partners. If you cannot reach an agreement, the terms of dissolution will be governed by the Texas Business Organizations Code.
Formally Dissolve Your Partnership
When it’s time to dissolve your partnership, you will need to discuss the dissolution with your partners.
Most partnership agreements require partners to take a vote regarding dissolution. Your agreement will also dictate whether the vote needs to be unanimous and, if not, how many votes are needed to dissolve.
Many times, dissolution will be uncontested. However, if one or more partners won’t agree to dissolve, you may face some roadblocks. Your partnership agreement may provide guidance on how to resolve such a situation, but if not, you may need to take the matter to court.
Your partnership attorney can help you understand your options in case dissolution is contested. They can work with you to devise a strategy for how to dissolve a business partnership.
Dividing Assets and Liabilities
Once you have decided to dissolve your partnership, you will need to complete a number of tasks.
These tasks may vary depending on whether one or more partners are buying out others or whether you are dissolving your business altogether.
If one or more partners are going to purchase partnership interests from a departing partner, you will need to calculate the value of the business and determine the amount of the buyout.
Depending on the terms of your partnership agreement or separation agreement, remaining partners may complete the buyout with a lump sum or by paying installments to the departing partner over time. This may require remaining partners to seek financing to fund the buyout.
Next, you will need to remove the departing partner’s name from business accounts and other assets. This may require refinancing of some assets.
You may also need to sign any necessary releases or indemnity agreements to protect the departing partner from further liability.
Partnership wind up
If you are going to stop operating your business altogether, you will need to completely wind up all aspects of the business. This may include:
- Completing work in progress;
- Paying any outstanding debts;
- Paying taxes;
- Selling assets;
- Returning capital contributions to individual partners; and
- Dividing any excess funds.
Some states require you to file a formal statement of dissolution with the state when you dissolve your partnership. This is not necessary in Texas. However, if your partnership is registered to do business in other states, you will need to check individual state laws.
Your attorney can help you with this to ensure that you comply with all necessary filing requirements.
Notify Customers, Creditors, and Suppliers
Notifying others of your partnership dissolution is not legally required. However, it is an important professional courtesy.
It can also help protect you from future liability. If one partner enters an agreement with someone who doesn’t have notice of the dissolution, other partners can end up being liable.
You should consider reaching out to anyone you regularly do business with and personally informing them of changes to your partnership. You can also publish a notice in local newspapers.
How the Curley Law Firm Can Help with Your Partnership Dissolution
If you want to learn more about how to dissolve a partnership in Texas, contact Adam Curley of the Curley Law Firm today. Adam is active in the Houston business community. He has represented hundreds of business clients all over Texas on a wide variety of business issues. He can help you with all aspects of partnership law from formation to dissolution.
Call or contact Adam today to learn how he can help you with your partnership.