Dissolving a Partnership in Texas
Dissolving a partnership in Texas is a fairly straightforward process.3 min read
2. Steps to End Your Partnership
Dissolving a partnership in Texas is a fairly straightforward process. Assuming that all of the partners approve of the dissolution, all you need to do is file your dissolution papers and wind up any remaining business of the partnership.
Dissolution and Partnership Agreements
When two people agree to go into business together and decide not to establish a limited liability company (LLC) or a corporation, their business is known as a general partnership. General partnerships are the default structure for businesses with more than one owner.
You can create a partnership by writing a partnership agreement. Obviously, anyone who plans to be a partner in the business should have a hand in writing the agreement. Partnership agreements can be verbal or in the form of written documents. In general, your partnership will come into existence when the agreement is written and signed by all parties.
Unlike some other business entities, partnerships typically have a limited lifespan, which is why it's important that your partnership agreement covers what to do if you want your partnership to end. If you don't have a partnership agreement in place, or if your agreement fails to describe how to dissolve your partnership, you must terminate your business based on the rules in Texas.
Steps to End Your Partnership
If you're interested in dissolving your partnership, there are a few basic steps you can take:
- Review the Agreement: While not required, the majority of partnerships do have partnership agreements. If, however, your general partnership has no formal agreement, you simply need to tell your partners that you want to end your relationship. On the other hand, if there is an agreement, you should follow the dissolution process listed in this document. For example, dissolution may need approval by a majority of the partners.
- Discuss the Termination: It's important to discuss the dissolution process with your partners before moving forward. In particular, you need to determine how to allocate future liabilities. You should hold a partner meeting to discuss these issues.
- File Paperwork. When you're ready to formally end your business, you should file dissolution papers with your state. While these forms are not always a requirement, they do formally announce your partnership's end. A dissolution of partnership form can also make resolving future issues related to debt much easier to handle.
- Posting Notifications: Anyone who could be affected by the end of your partnership should receive notification of its dissolution. Parties that may need notification include debtors, customers, employees, and the IRS.
- Close Your Accounts: You will need to make sure you have settled any outstanding debts when dissolving your partnership.
The last step of dissolving a partnership is allocating remaining assets among your partners. Generally, partnership agreements will outline asset distribution. You should also make sure to close all of your business bank accounts. In some cases, your partnership will be involuntarily dissolved. This means that something outside of the consent of the partners has caused the dissolution of your partnership. For instance, your partnership could end as part of a court ruling.
When all of your partners agree to end the partnership, this is known as a voluntary dissolution. In your partnership agreement, for example, you could set a duration for your partnership. In most cases, partnership agreements do not include a set duration for the partnership. Instead, the business will be dissolved after reaching another agreement. Like partnership agreements, dissolution agreements can either be verbal or in writing. The agreement to dissolve the partnership should include the date on which the partnership will end. If there is no date included, the dissolution date will be the date of execution.
There are many circumstances where you might need to dissolve a partnership, such as:
- The death of a partner.
- The resignation of a partner.
- A partner can no longer perform his duties because of physical or mental incapacitation.
- The retirement of a partner.
- Two partners decide to remove another from the business.
- Bankruptcy is filed.
- A mutual agreement to end the partnership.
- The partnership has engaged in illegal business.
- The partnership can no longer fulfill its purpose, and one partner acquires a court order to dissolve the business.
- A buyout occurs.
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