Are you or your partner trying to exit or dissolve your business partnership? Then question is How to Closing down a Partnership Firm in India? Breakups are tough. It’s like a divorce with additional complications. And most of those are financial. Business partnerships dissolve for many reasons – one partner may have lost interest, is no longer committed to the business or just wants to retire. Sometimes things just don’t work out. You may not be able to salvage the personal relationship, but you can save yourself some money and hassle as you end your business partnership.
But how do you plan and execute a clean dissolution of your partnership? What are your options and what legal steps must you take? Let’s take a walk-through your options and your obligations.
Closing Down a Partnership Firm
One critical foundation for a clean break-up is a partnership agreement – best established when you formed your partnership. Most agreements outline how the partners will run the business – how business decisions are made, how responsibilities are divided, how disagreements will be resolved and so forth. A good one will also include a dissolution strategy, like a prenuptial agreement. Although not required by law, it can be extremely risky to operate without one.
If your partnership isn’t working, revisit the agreement and review your options. Remember, dissolving the partnership isn’t always necessary. You might consider changing the weighting of the partnership so that one partner has more decision-making or financial control through a majority share, allowing a less-committed partner to remain involved while relinquishing some control.
If that’s not an option, and you or your partner wish to continue the business outside the partnership, consider selling your share or buying your partner’s share. Consult a lawyer to ensure your interests are protected during this process.
If either of you want out or you can’t reach an agreement about the future of the business, it may be time to legally dissolve the partnership.
How to Legally Dissolve a Partnership
Dissolving business partnerships is governed by state law, so check your state’s website for information about the process and the forms you need to complete. It usually takes 90 days from filing a statement of dissolution (usually a simple one-page form) to dissolve a partnership.
Closing Down a Partnership Firm – The process ensures that neither partner will be responsible for the other’s debts and liabilities and, once dissolved, that neither partner can enter into any binding transaction on behalf of the partnership. It also renders your original partnership agreement void.
If you didn’t have a partnership agreement that outlined a dissolution strategy, try to work out terms together. If not, an intermediary may be able to help you resolve your dispute through mediation. Many law firms offer these services. Your final resort is a court-dictated decision which could be costly and may not provide the result you were looking for. Courts often divide assets and liabilities 50-50 regardless of any disputes.
Closing Down a Partnership Firm – There are no direct tax consequences of dissolving a partnership, but you will need to account for business-owned property that has appreciated in value and for payment of business and employer taxes. Let the tax authorities know that you are no longer in partnership when you file your final return.
Don’t forget to notify customers, partners, and suppliers. If you choose to continue the business in your own right, give the message a positive spin.
If you want to continue and grow the business after dissolution, consider restructuring it as an LLC or Corporation. And it never hurts to get mentoring (organizations like SCORE offer this for free) or legal counsel to help you formulate your new business strategy.
You might want to consider mediation in this situation before you resort to costly litigation.
Sometimes dissolving a partnership can be a bit of a challenge, especially when those partners are having trouble with finances in particular. However, it seems as though in your case it could be a pretty straightforward procedure according to the Partnership Act of 1890 that regulates this type of endeavour. The one thing you must be aware of is that you must stop trading immediately under your current business name.
Secondly, all outstanding business and transactions should be wound up and dealt with according to the percentage of shares you each hold in the venture. Not all ventures are a 50/50 split so this will need to be considered when paying bills and bringing in monies collected from outstanding debts. As well, any person or entity that owes you money or is owed money by you should be notified of the dissolution immediately and no more business can be conducted under the current enterprise.
Besides filing for dissolution of the partnership, it could get tricky especially where taxes are concerned because there are two distinct types of dissolution – technical and general. In a general dissolution the business/partnership would be wound up and simply cease to trade. In a technical dissolution one of the partners continues on (under the same name usually buying out the other) and continues to trade. Taxes and other financial issues can be disputed and lengthy and costly Court proceedings could ensue.
How to Closing down a Partnership Firm in India?
The dissolution of a partnership firm refers to the termination of all contractual relationships among partners. It implies that the working of a partnership firm is stopped and the assets are realized to pay the various kind of liabilities. However, there is a demarcation between the dissolution of a partnership firm and the dissolution of partnership. Dissolution of partnerships refers to the termination of the partnership relationship of one partner with other partners and the firm whereas the dissolution of partnership means the end of the partnership business. If an existing partner dies, retires or is unable to pay the debt then other partners can purchase the share of the outgoing partner and continue the business under the same name.
It says that if on the happening of four contingencies numbered as a, b, c and d and qualified by the term of the contract the firm shall stand dissolved. They are as: On the expiry of the term, on completion of the undertakings, on the death of a partner, Adjudication of partner as insolvent, and Dissolution by Notice.
Closing Down a Partnership Firm – Also, there are other methods by which we can dissolve our Partnership Firm and for this we can take consultation from Consultants available all over India. In Delhi, SK Tax Law Firm is most suited Law Consultant having a team of professional experts.