There are many reasons that you might decide to close a business. In some situations, the business is not profitable, and you realize that it is time to close the business.
On a related note, your business may be filing for Chapter 7 bankruptcy, necessitating its closure.
In other cases, however, you may have a dispute with your business partners, or you may simply want out of the business for personal reasons.
Depending upon the type of business you have and your current business structure, you may not be able to simply close the business doors without attending to specific closure or dissolution requirements under Florida law.
In particular, if you have a partnership, it is essential to know more about how a partnership dissolution agreement works, and what the law requires in dissolving a business partnership. Let our Orlando business lawyers assist you with your partnership agreement.
What is a Partnership?
If you want to end a partnership, it is extremely important to have a partnership agreement that outlines terms for dissolving the partnership. Yet in order to understand the need for a partnership agreement, you will need to know more about how a partnership work.
The U.S. Small Business Administration explains that a partnership is the “simplest structure for two or more people to own a business together.” In general, there are two different kinds of partnerships, including limited partnerships (LPs) and limited liability partnerships (LLPs).
In a limited partnership, one of the partners has unlimited liability while the others have limited liability. The partners with limited liability tend to have less control over the business.
In a limited liability partnership, all partners have limited liability—both in relation to the business itself, as well as in relation to the actions of the other partners, according to the SBA.
A partnership is a “pass-through entity,” which means that profits pass through to owners and are listed on personal income tax returns. However, in a limited partnership, the general partner with unlimited liability is required to pay self-employment taxes.
Drafting a Partnership Agreement with an Eye Toward Dissolution
As we mentioned, there are numerous reasons that partners pay want to get out of a partnership. Sometimes the partnership will be dissolved, while in other situations one or more partners may buy out the partner who wants to leave the business.
When you start the business, it is extremely important to have a partnership agreement that outlines the type of partnership—a limited partnership or limited liability partnership—and the roles and responsibilities of each partner.
In a partnership agreement, you can also make clear whether one partner can be bought out, or whether the business will need to dissolve if one partner leaves. This is often known as a “buy-sell agreement.”
A partnership agreement can also clarify who is permitted to buy into the business as a new partner, and what will happen if one of the partners needs to leave the business as a result of divorce, death, or another reason.
Having a partnership agreement in place from the beginning can make the process of dissolution much clearer, especially if other partners want to remain in the business and to keep it running even if one partner wants to leave.
A partnership agreement can also outline the terms for dissolving a partnership altogether, but in some situation’s partnership dissolutions are handled through a separate agreement known as a partnership dissolution agreement.
Dissolving a Business Altogether with a Dissolution Agreement
When all partners in the business want out of the business—in other words, no partners want to remain, and the business will close—it is time to move onto a partnership dissolution agreement.
This is distinct from any clauses in a partnership agreement that outline how one or more partners will be bought out or removed from the partnership while the other partners remain.
A partnership dissolution agreement is essential when the business will end and the original partnership agreement did not provide clear information about how to dissolve the business.
What should go into a partnership dissolution agreement? You should consider the following:
- Each partner’s duties with regard to dissolution;
- Timetable for dissolution process;
- How business debts will be settled; and
- Distribution of business assets.
You can work with an experienced business lawyer in Florida to draft a statement of dissolution, ensuring that you meet all requirements under Florida law.
Contact a Florida Business Lawyer
If you need assistance drafting a partnership agreement or a partnership dissolution agreement, an experienced Florida business lawyer can assist you. Contact BrewerLong today to work with a business advocate.