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How to protect yourself from a failing business partnership

On Behalf of | Jul 10, 2024 | Uncategorized

Just like marriages, business partnerships can encounter rocky roads and end in a messy divorce. The critical thing in ending any relationship, be it a marriage or a business partnership, is remembering that behind the other side of the argument is someone you once respected and admired. The breakup does not have to be messy. It can be amicable and productive.

Refer to your partnership agreement

If you had a contract drawn up when the partnership started, it should have stipulations on dividing assets and liabilities, buyout terms and even bankruptcy dissolution. If you did not, worry not; the Uniform Partnership Act applies to all partnerships in all states in the U.S., except Louisiana. Seeking legal advice early can lead to a smoother process.

Draft a dissolution paper

Once you have agreed with your partner to terminate the business relationship, your legal counsel or theirs can draft a dissolution paper, which you or your partner can review. It should cover everything, including each party’s rights, responsibilities and liabilities. It should also cover the liquidation of assets, tax details, intellectual property ownership and other vital issues.

Resolve all financial issues first before final dissolution

It is important to remember that you must ensure you are in the clear financially before dissolving the partnership. Close all joint accounts and settle all liabilities before the partnership is dissolved to avoid exposing yourself to legal consequences. You may also need to hire an accounting and tax professional to help you through this process.

Once the dissolution is final, inform your clients, vendors and community of the termination of the partnership.

Reaching an amicable dissolution with your partner is possible, and the end of the business partnership does not mean the end of your journey as a businessperson. Part of being in business is learning when to cut your losses.