Businesses are taking a big hit since worldwide lockdowns rolled out nearly a year and a half ago. According to a May 2020 Washington Post article, “more than 100,000 small businesses have shut permanently since the pandemic escalated in March.” The numbers have most likely risen considerably since it was published more than a year ago.
Whether due to unprecedented restrictions or unrelated issues, such as partners falling out, some Texans are looking to wind up their business. Below we’ll go over a step-by-step list on how to expedite the process.
What is a business partnership?
A business partnership includes 1 or more people who own a business together. All parties contribute to the overall welfare of the business, such as operations and finances, and are thereby held responsible for the profits and losses.
What types of business partnerships are there?
There are four types of business partnerships:
- General partnerships
- Limited liability company partnerships (multi-member LLCs)
- Limited liability partnerships (LLPs)
- Limited partnerships (LPs)
How do you legally dissolve a business partnership?
There are five basic steps to legally dissolve a business partnership, with additional steps depending on your specifics. For example, if you’re registered out of state, you will need to determine each state’s requirements, certificates, etc.
5 Steps to Dissolve your Texas Business Partnership:
- Review partnership agreement
- Vote to dissolve the business
- Wind up the business (pay debts, sell, and distribute assets)
- Notify third parties (clients, creditors, customers, and suppliers)
- File as “final return” on last tax return
The first step when considering the dissolution of your business is to reference your partnership agreement for any predetermined procedures. If you don’t have one, it will automatically default to Texas state law, which requires a majority-in-interest (more than 50%) vote on the matter.
We recommend you hire an attorney to help mediate and draft a written agreement on how to proceed. Dissolving a partnership can be a sticky situation and you want to avoid any unnecessary disputes should disagreements arise.
Once a successful vote to dissolve is met, partners should start to wind up all business. This means that all debts are repaid and all assets are sold off. Reference Texas’s Uniform Partnership Act on who should be paid in what order. If any assets remain, distribute them as agreed upon between the parties.
Once all business is wrapped up, partners should notify all third parties, such as their creditors, customers, and suppliers. Although this isn’t a legal requirement, it can help prevent any future problems that might arise, such as contractual obligations that extend past the dissolution.
There is no state filing requirement for partnership dissolution in Texas, unlike some states. Some partnerships may also not need to pay a state franchise tax, but some limited liability partnerships do. Make sure to consult a lawyer for your specific case requirements.
What happens if one business partner wants out?
When one partner wants to part ways while the other(s) want to continue the business, it’s called a withdrawal. It is possible to continue business without them. One way is by buying out their portion of the company, but we will cover this in more depth in the next question below.
As long as all parties can agree by majority vote to a determined path forward, a court does not have to be involved. Coming to an agreement outside of court is always preferred. However, in the case that no resolution can be met, the court determines the proceedings.
Can I sell my share of a business partnership?
If the leaving party wants to sell their share of the business to the remaining partners, it’s called a buyout. Share determination should take place after all debts and financial obligations are considered.
In the case that you want to sell your share to an outside party, most states allow financial transfer to a third party. However, according to Unilateral Ownership Transfer, the party is only entitled to the profits and losses of the partnership.
San Antonio Business Lawyer
Closing a business is never an easy decision to make, especially when more than one person is involved. Our seasoned professionals at Wilson Brown law are available by phone or online for any questions you may have about your business partnership.
Call (210) 469-5838 today or schedule an appointment online for your free consultation.