Partnering with others on a new business has many benefits, including allowing you to share the workload and financial investment and bring in other perspectives and skillsets. However, even the most successful business partnerships may reach an end. It may be because of a dispute, or one of you is simply ready to move on or another reason. If your business is in Florida, you cannot just cease operations; you must comply with your partnership agreement and Florida law in dissolving your business partnership.
What Steps Are Necessary for Dissolving a Business Partnership in Florida?
Before you can dissolve your partnership, there are decisions that must be made and steps taken to ensure you legally stop operating. These include:
- Reviewing your partnership agreement. Your partnership agreement should outline when and how dissolution is permitted. In addition, it may allow for the buyout of partners who wish to leave the business in lieu of dissolving the partnership. In the absence of a partnership agreement or if the agreement does not stipulate the terms for dissolution, Florida’s Revised Uniform Partnership Act (RUPA) governs the dissolution of Florida general partnerships. The Florida Revised Uniform Limited Partnership Act (RULPA) applies to dissolution of Florida limited partnerships.
- Considering options other than dissolution. If all of your partners are not in agreement about dissolution of the partnership, another option may be a buyout. A buyout agreement allows some of the partners or the partnership to buy out other partners. This allows the business to continue while those who wish to depart can exit. Many partnership agreements have a buyout provision that sets forth under what circumstances the buyout can occur, the partner’s and partnership’s rights to purchase the interest and how the partner’s interest should be valued. If a buyout is not possible, then the next step is to proceed with the dissolution.
- Voting on dissolution. Typically, partners must vote on a resolution to dissolve the partnership. The partnership agreement should specify the procedure for voting and requirements for approving a dissolution. If there is a disagreement about the decision to dissolve, the parties may seek to mediate the dispute. If that does not work, a party may also go to court to force dissolution. Notably, if you don’t have a partnership agreement, Florida’s RUPA provides that the partnership will be dissolved if any partner decides to leave the partnership (unless the remaining partners elect to continue the partnership without the dissociated partner).
- Winding up the business. Partners must close up operations of the business by taking certain steps, including the following:
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- Completing unfinished work
- Paying outstanding debts
- Collecting receivables
- Notifying business partners, creditors, customers, employees, etc.
- Obtaining a valuation of the business and its assets
- Selling some or all assets as agreed to by the partners
- Distributing assets in accordance with the partners’ agreement
- Resolving tax issues. Any tax liabilities should be paid as part of winding up the business. Partnerships are not required to obtain tax clearance in Florida before closing. However, they must notify the Florida Department of Revenue (DOR) that they are closing their business and want to close any business-related tax accounts. At the federal level, partnerships should file a final income tax and employer withholding return with the IRS, which is generally due by the 15th day of the fourth month following the termination date.
- Filing a Certificate of Dissolution. Partnerships should file a Certificate of Dissolution that states that the partnership has dissolved and is winding up its business. Although it is not legally required, the Certificate puts others on notice that the partnership has ended and limits your liability.
Dissolving your business partnership is a significant step that should be executed with the advice of legal counsel. An attorney experienced in handling business divorces can help ensure that the dissolution complies with any agreements and the law, and that the distribution of assets is fair. Contact us for assistance with your partnership matter.
