Dissolving a Business Partnership with Mediation

When individuals go into business together, there are always high hopes that the partnership will continue indefinitely. During the course of operations, however, circumstances change and there may come a time when the partnership needs to be dissolved. Dissolving an entity is not a simple process, and it does not happen overnight.

Navigating the complexities of a business partnership dissolution is stressful for everyone involved. When partners do not agree on all the details of the process, it can lead to more delays and further stress. Mediation can be a great tool to help partners handle the business dissolution process.

With mediation, the parties work out the terms and conditions of the dissolution with the guidance of a neutral, third-party mediator. The mediator facilitates constructive dialogue between the parties toward an agreement that both sides will be satisfied with. The process is timely, cost-effective, and it allows partners to resolve any differences they may have in a collaborative rather than combative setting.

Common Issues to Resolve with Business Partnership Dissolutions

When partners decide to go their separate ways, there are several issues that need to be addressed before they can bring this chapter of their lives to a close. Here are some of the most important:

• Reasons for the Dissolution: The first and most important issue to address is why you are dissolving the partnership. There are numerous potential reasons. Is the business insolvent? Does one (or more) of the partners need to withdraw from the business (for whatever reason)? Depending on why the partners are splitting up and the terms and conditions of the written agreements between them, it could be that the entity does not need to be dissolved. For example, if one (or more) partners wants to continue with the business, they could simply buy out the shares of the partner who wishes to withdraw.
• Following Entity Dissolution Requirements: The steps to dissolving a partnership will depend largely on the type of entity and the requirements of its organizational documents and/or other written agreements. If you are a partnership without a written agreement, then the terms can be worked out between the partners at the time of the dissolution. However, if there is a written partnership agreement, articles of incorporation (for a corporation), or articles of organization (for an LLC), the rules for dissolution within the agreement must be followed.
• Informing Stakeholders Regarding the Closure: During mediation, you must decide how you will inform those who have a vested interest in your business. These may include your landlord, employees, vendors, creditors, and clients/customers. You and your partner(s) must decide the appropriate time to inform each stakeholder. This will depend on what is stated in the written guidelines, as well as the specific circumstances of the business. You will also need to make arrangements to collect any accounts receivable, settle up with any creditors you owe money to, and resolve any outstanding issues with clients/customers.
• Government Compliance: If you filed inception papers for your partnership or documents for an LLC or corporation with the state you are headquartered in, you will likely need to file a certificate of dissolution (also known as articles of dissolution) when you close the business. You will also need to cancel any business licenses or permits and settle up with the IRS and state and local tax authorities.
• Sale and Distribution of Assets: Once all the paperwork has been filed, the accounts receivables have been collected, the creditors have been paid, and the customers have been satisfied, you need to decide how you will liquidate and distribute the remaining assets. In general, this should be done in accordance with the guidelines laid out in the inception documents as well as any applicable government laws and regulations.

Mediation Opens New Possibilities

Even if the partners generally agree on the steps in the dissolution process and how they will go about closing the business down, it may still be useful to consider mediation. Bringing in a third-party individual from the outside can provide a fresh look at the situation and bring up things you may not have previously considered.

For example, there could be a way for the business to remain solvent through some creative and unique approaches you were not previously familiar with. A skilled mediator who has worked with numerous other businesses can leverage his/her experience to provide partners with a whole new range of options, allowing them to make the most informed decision regarding the future of their company.