How do I dissolve a business or LLC partnership?

How do I dissolve a business or LLC partnership?

There are many reasons you might want to dissolve a business. Maybe you or your business partner is preparing to retire, or perhaps there is a dispute bubbling and you need to either find a resolution or bring your partnership to an end. Some other reasons might include:

• Bankruptcy or poor business performance

• Growth / Corporate restructure

• Accomplished goals set out in initial partnership

You’ll also need to consider whether you and your business partner(s) are in agreement about the need to dissolve the company.  If only one person wants the company to close, it is often more likely that a dissociation, removing the party who no longer wants to participate in the business, will occur unless it can be shown that “it is not reasonably practicable to carry on the . . . company’s activities in conformity with the [business’s agreed purpose].”  

On the other hand, if all parties agree that dissolution is proper but they cannot reach agreed terms for business closure, then it may be necessary to bring an action for dissolution and/or to enforce the terms of the business’s governing documents.  Whatever the reason, dissolving a business or dissociating an owner requires certain steps you’ll need to take to ensure you fulfill your end of the business agreement. There are also some specifics to consider in WA state when dissolving, or dissociating an owner of, your business, which we will cover later in this topic.

Corporate or Partnership Agreements

In most business formation agreements, there will be some kind of clause outlining the steps you need to take when the parties want to dissolve the company. This should include directions for satisfying outstanding debts, if possible, and distributing any remaining assets (if any) when the partnership is dissolved. If you have terms already in place from your business agreement, you will need to follow the process outlined in your agreement when dissolving your company.

NOTE:  Until 2015 in Washington State, you were required to supply an operating agreement for your business, but the state did not require the filing of such agreement when the corporation was registered. Since 2015, the statutes were amended to permit the use of the default rules under the Revised Code of Washington, so long as the business complied with the other statutory requirements for business formation.

What if I don’t have a partnership or operating agreement?

If you and your partner did not create a formal agreement or did not outline the terms of dissolution when you created one, you’ll need to discuss with your partner what the best course of action is for your situation. There are a number of routes you can take, but the simplest would be to simply work together with your partner to create a partnership dissolution agreement. 

Sometimes the situation has devolved and productive communication is no longer possible. If you need the help to get through the business dissolution, or you would just like to make this process easier, consider hiring a third party like Funke Law Firm to help with contract drafting.

Business Dissolution Agreement

Your partnership dissolution agreement should include who is entitled to what business assets, along with who is responsible for outstanding debts or final obligations. This should be very thorough to avoid legal complications down the road. Once you and your partner have agreed on the partnership dissolution terms, you can sign the agreement with confidence that the partnership will end without future confusion or complications.

Should complications arise either in agreeing upon the terms of your contract, or in enforcing the dissolution terms after the fact, you should consult a business attorney like Funke Law Firm to provide business dispute resolution services.

Judicial Business Dissolution in Washington State

If you and your former business partner(s) are unable to reach an amicable term for closing the business, you may need to bring an action in Superior Court to dissolve your business or dissociate an owner–you are permitted to plead in the alternative, meaning ask for either dissolution (full closure) of the business, or dissociation of you or your soon-to-be former business partner from the business, and allow the Court to decide what the fairest solution would be.  

Either way, this is a standard litigation matter, which often takes a good deal of time to accomplish, and may involve discovery, motions practice, mediation, arbitration, and/or trial of the issues.  Four factors the Court may consider when determining whether dissolution is the proper remedy are:

1. Whether there is an unbreakable deadlock;

2. Whether management is unwilling or unable to reasonably permit or promote the business’ stated purpose;

3. Whether the business’s stated purpose has been accomplished;

4. Whether the business is financially unfeasible.

If the Court grants the business dissolution, then it will likely also order an accounting and payment of all debts, as well as distribution of the business’s remaining assets. 

Final Dissolution Steps

When dissolving a business partnership, you will be required to submit a certificate of dissolution, regardless of the terms between you and your partner. It can take 90 days after you file for your partnership to be officially dissolved–during this time, you should be winding down your business, notifying vendors and customers of the closure of your business, paying outstanding debts, and ensuring that all the business’s affairs are closed out.

Before you are finished with your business partnership, you’ll want to take a number of steps to leave no loose ends.

• Submit your certificate of dissolution to WA state

• Cancel any permits, licenses, or other registrations

• Pay outstanding debts

• Liquidate or distribute assets as outlined in the dissolution agreement

• Pay final taxes and close out relevant bank accounts from your partnership

Dissociation

Another route you can take involves dissociating from your business partner, in which one partner stays on and the business continues, while the other partner leaves. In an uncontested case, such as the change of career or retirement of one member of the company, the dissociation is usually simpler; in contested cases where one party wants to keep the company’s name and good will but split from the other business owner, this can become a much more difficult proposition.  

Regardless of whether the split is amicable or not, determining what value a dissociating owner is entitled to receive when they leave may be difficult.  However, there are experts who can help determine business valuation, as well as help to determine what capital contribution/assets and/or sweat equity may exist within the business.  In these cases, we would highly recommend consulting with a third party like Funke Law Firm to determine the best course of action. 

If you need help with a business partner situation, contact Funke Law Firm today! To see a full list or our services, click here.