February 9, 2022
Dissolving a Business Partnership
Is your business “marriage” heading for divorce over a dispute? If so, you’ll want to start by examining your original partnership agreement and then consult with your tax professional and an experienced business lawyer. Talk to your professional legal team before you do anything, as we can best handle the situation in accordance with New Jersey law and your best future interests.
Is Dissolution the Right Move at This Time?
Just like real divorces, timing can be an important factor. To determine if now is an ideal time for a split between partners, think about:
- Has the partnership recently acquired any new assets, debts, inventory, or clients?
- Will the dissolution impact any loans, leases, or other responsibilities?
- Is the economy in my favor (buyer’s market v. seller’s market)?
- Do I have any outstanding business obligations (for example, if you are the Chief Financial Officer but you have not filed for the tax extension yet)?
Decide on a Dissolution Strategy
There is often room for some creative strategy in restructuring a partnership that has more than two people. In this case, each remaining partner can assume a new role in the organization to cover your position. One partner can buy out the other, or the partnership can be dissolved completely, and the remaining partners can reform a new partnership without you.
The Partnership Dissolution Process in New Jersey
Your attorney will fill out and file the appropriate partnership dissolution documents from the New Jersey Department of the Treasury. These documents cannot be submitted online, unfortunately.
Why Selling Your Share Is Complicated
Selling your ownership portion of the partnership is a bit of an oasis in the desert. The reason is that, unfortunately, your remaining partners must agree to the sale and approve of the new partner. If even one partner says no, the deal is off.
How to Determine the Value of Your Share
There are three common ways of calculating a partnership’s value:
- Income Approach: This method looks at the incoming cash flow a buyer will get if they buy your share
- Market Approach: This method is like pulling real estate “comps” when you buy or sell a house (it analyzes the values of recently sold or appraised businesses of comparable size, profitability, industry, etc.)
- Asset Approach: This method is great for real estate or investment partnerships–it looks at the value of your partnership’s assets
In some cases bringing in a business appraiser is your best bet. You will get the objective input of an experienced and knowledgeable fiduciary party.
Remember when you divide up your partnership’s assets to check under the couch cushions. Not only do you need to split up the tangible things like real estate or inventory, but you’ll need to split up the cash in your partnership’s bank account. Sometimes there may be outstanding accounts receivable coming in after the partnership is dissolved. You could lose out on a nice chunk of change by forgetting the partnership’s other assets.
A New Jersey Commercial Lawyer Can Make the Process Easier
At Varcadipane & Pinnisi, PC, we are experienced commercial and business lawyers who can make dissolving your business partnership less stressful. Ensure you get a fair deal and get professional input on any creative solutions this transition may require. Set up a legal consultation today.