When business partners decide to dissolve the partnership they worked together to build, tensions can be high. There might even be threats of litigation being thrown around. While there’s no guarantee that you can avoid a lawsuit between you and your business partner, there are steps you can take to minimize the probability of one occurring.
Make sure you divide the partnership’s assets properly
Under Colorado law, the partnership’s assets must first be put towards satisfying any partnership liabilities and debts. Once those are all taken care of, then the remainder must be distributed to the partners.
If your partnership agreement has a provision that outlines exactly how to distribute property upon dissolution, then follow that plan carefully. Courts will enforce partnership agreements that the parties signed on to if a dispute arises.
If your partnership agreement doesn’t contain such a provision, then distribute the assets according to each partner’s ownership interest in the partnership. If a precise distribution isn’t possible, because some assets are worth more than others, it will probably be a good idea to sell them in order to have liquid cash on hand that you can more easily divide.
The law only requires partnerships to distribute partnership property upon dissolution. Sometimes, litigation arises over whether certain property counts as partnership property or not. If at all possible, it’s best to determine with your business partners what constitutes property owned by the partnership, as opposed to personal property of the individual partners that the partnership was using.
Make sure you take into account assets that don’t have an obvious monetary value, but that could lead to your partners fighting you for them in court. Client lists are notorious for causing contention among partners who want to go their own way and start their own businesses. If you can, try to divide your partnership’s clients in a way that satisfies everyone.
Tying up any loose ends
After you’ve paid off any debts your partnership has and distributed the assets, it’s time to handle the administrative side of things.
The IRS requires that you cancel your Employer Identification Number – if you have one – and that you close your IRS business account. In addition, Colorado requires you to file a Statement of Dissolution with the Secretary of State.
Dissolving a partnership can be a tricky process. It could be wise to consult an experienced business law attorney when planning the wrapping up process of your partnership. They will be able to help you to handle all of the legal and administrative steps necessary – and hopefully they will be able to help you minimize the chance of litigation between you and your former partners.