Dissolving a Partnership
UPDATED: February 8, 2020
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If you are in a partnership and ready to fold the business, then you have a right to dissolve it under the Uniform Partnership Act, which has been adopted in or influenced by the partnership law of almost every state. Even if it’s not a partnership (e.g. if it’s a corporation or limited liability company) you may be able to dissolve the business or extricate yourself in some fashion, but you will need to check your state’s laws for your exact rights. Of course, having the right to dissolve a business is easy enough, but actually breaking apart an enterprise that you share with others and then moving on can be very difficult.
Taking the Matter to Court
Dissolving a partnership necessarily means splitting the assets and liabilities of the business between the partners, which can get tricky. If you and your partner(s) cannot agree on the details and work through them on your own, you may need the assistance of an attorney versed in partnership laws to help you sort out your rights. If you want out of the business but your partner wants to continue the business and the matter ends up in court, the court may force your partner to buy out your interest, and if they cannot, the business may be liquidated and the proceeds distributed between the partners.
Determining the Value of Your Small Business
Of course, a significant problem is valuing any small business, let alone a partnership, where the ownership is closed (only two partners) and completely illiquid. While there are various mechanisms for valuing a small business—such as based on assets or based on either gross revenue or operating profit, there is a considerable amount of guesswork. There can also be significant expense, especially if the two partners disagree as to the value: in that case, various financial experts or consultants, accountants, etc. would need to be brought in to evaluate the business and help determine what it would be worth.
So, you have a right to get out of or dissolve the partnership, but if it’s contentious between you and your partner—e.g. you cannot come to an agreement about your leaving and how you will be paid for your share of or interest in the business—there is the potential to expend a significant amount of money on litigation, including experts to determine the value. Therefore, it is very much in your interest to work something out with your partner without going to court.
Consult with an Attorney
You should consult with a business attorney. The lawyer can review all documents concerning the creation of the partnership (i.e. the partnership agreement) to see how they will affect the outcome, explain the steps of dissolving the partnership and your rights in detail, and help you negotiate with your soon-to-be-ex–partner.