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How to dissolve a business partnership

A business partnership is not unlike a marriage - the partners are emotionally connected and bound together legally. Ending a business partnership is the equivalent of a divorce and can be as easy or difficult as the end of a marriage.

While the steps are similar, there are different paths involved in dissolving a partnership and limited partnership as opposed to dissolving a corporation.

Partnership and limited partnership

If you're in a partnership or limited partnership, the first step is to review your partnership agreement. A well-planned agreement will have anticipated the end of the partnership and specified the actions necessary to dissolve the partnership, pay the unpaid debts and distribute dividends and assets.

It's also important to consult with a tax expert to position yourself for potential tax ramifications of the dissolution. Also remember that partnership members are forbidden by law to pay themselves when there are still outstanding debts to the partnership.

All this needs to go into writing in a dissolution agreement in which the partners agree on timing, final expenses, distribution of debts and assets and steps to be taken with the Arizona Corporation Commission.

All customers, creditors, debtors and employees should be notified of your decision to dissolve the partnership.

While not required, it's a good idea to file a dissolution of partnership form with the state. This makes it clear to all involved that the partnership is finished in case there are any lingering issues or one of your partners continues to conduct business.

Corporation

A simple filing with the Arizona Corporation Commission is sufficient to dissolve a corporation before it has issued any shares or commenced business.

If shares have been issued, the board of directors must notify all shareholders of the proposal for dissolution and schedule a vote.

If the shareholders agree (in most cases a simple majority is all that's necessary), the Article of Dissolution must be published and all fees paid. The corporation now collects outstanding debts, pays off creditors, informs all customers and employees, disposes of properties and distributed remaining assets to the shareholders.

No matter how simple your partnership or corporation agreement may be, dissolving it is a complicated legal matter. Like a divorce, it is always important to have qualified legal counsel to make sure your interests are protected.

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