What are the effects of the dissolution of business and what events should I pan for?

The decision has been made to bring your business to an end.  A majority of your partners have determined that its best not to do business together any more.  What are the things that you should be concerned about?


First you need to determine if the partnership has been dissolved wrongfully?  If it has, and you were not one of the parties who terminated the partnership wrongfully, then, under the Uniform Partnership Act §38, you have the right to continue the business in the same name for the same purpose with the same partnership property, as long as the those leaving partners are paid their share of the partnership interest, not including any good-will value, less any damages the leaving partner caused.


What happens to the intellectual property owned by the business?  Is it going to be auctioned to the highest bidder?  Does the partnership agreement predetermine the owner of the property upon dissolution?  Does the creator, or the original owner of the property own it?  Or is the property now owned by some other individual?  What happens if that person is one of the partners who terminated your partnership wrongfully?  Your jurisdiction, and the language of your partnership agreement can determine the answers to these questions.   Some jurisdictions have determined that the innocent partners have the right to continue to use the intellectual property for the original term of the agreement.  Other jurisdictions, depending on the language of the agreement, and situations involved, may determine that once the partnership has been terminated, the right to use the intellectual property has been terminated as well.


These same types of decisions must be made with regard to other types of partnership property such as inventory, equipment, vehicles, and real estate.  Also, leaving partners will want a release from existing and future liabilities from the continuing partners.  Will the continuing partners be able to handle that type of risk?


Thus it is important for the partnership to think ahead regarding these decisions when the partnership agreement or business operating agreement is drafted.  Partners need to think about termination and its consequences, but also things like liquidated damages, and steps following the notice of termination to wind down the business.


Photo By: Moyan Brenn