In business it can be helpful at times to form a partnership. Partners bring different skills to the table, and partnerships can leverage the financial assets of two (or more) people to start a business that they would not be able to finance on their own.
Considering A Partnership?
There are advantages and disadvantages to a partnership, and everything should be considered when forming the partnership. Regardless of whether you are starting a new company, promoting a valued employee, or bringing in a new partner, you should always have a written agreement detailing the partnership. This could be an operating agreement, partnership agreement or an amendment to the corporation by-laws, and should address 5 key areas of business operations:
- Capital Contributions
- Partner Salaries and Distributions
- Death/Disability of a Partner, and
These are key considerations to determine before any partnership starts.
Dissolving A Partnership?
If you need to dissolve the partnership for any reason, but especially if one or more of the partners will continue in the business, you must handle it appropriately. This is not intended to be legal advice – we are not attorneys – but the following items should be paid attention to when a partner leaves or dies:
- Follow the operation and partnership agreement section(s) covering dissolution or exit of a partner
- If the business is dissolved entirely, there are legal notices that must be filed. Consult an attorney
- You must notify the IRS and state revenue office that you are no longer in partnership, which is typically done at the time of your next tax filing
- Consult with a CPA/tax accountant about tax ramifications
- Notify customers, vendors and others that your business structure has changed or dissolved
- Close or change signatories on all bank accounts affected
- You’ll also need to take care of other loose ends such as business licenses, permits and canceling a trade name or “doing business as” name with your local government
There may be other considerations you need to make when starting or dissolving a partnership. This type of transaction can carry serious implications for the business. Formation of a partnership is not something you should undertake on your own. Hundley Advisors has experience helping clients create and dissolve business partnerships. We are not just an accounting firm; we are advisors for your business’s financial success. Partnerships can enhance that success when properly formed, but mistakes can lead to unexpected business difficulties.
Are you considering forming a business partnership, or do you know someone who is? We would be delighted to provide a complimentary initial consultation. Contact us today to set it up.