Dissolving a Business Partnership in Illinois
If you and your partners want to close or end your business, there are some steps you need to take. It may seem easier to simply walk away, but there can be consequences down the road. The better thing to do is formally end the partnership and tie up all the loose ends. This process is called dissolution.
This process can be simple or difficult depending on your goals and whether or not a well-written partnership agreement is in place. If there is an existing agreement it’s simply a matter of enforcing it. If there is no agreement it could be chaotic and expensive.
If you want out, as a partner, but the other partner or partners want to continue the business, there is a separate process, which we will explain next.
When completely dissolving a business, the ease or complexity depends on several factors, one of which is whether everyone agrees to end the business. And the process varies depending on the type of partnership you have. In some cases, simply agreeing and starting the process is enough, in other cases you may need to go through some formal steps, such as getting a resolution from the board of directors or permission from your shareholders.
As far as the state of Illinois is concerned, there is a process for officially dissolving your business. You will need to file a document called Articles of Dissolution with the Secretary of State. If you fail to notify the state and simply stop renewing your registration, Illinois will dissolve the business for you. While it may seem like the easy way to go, it can cause you and your partners to lose liability and tax protections that you may need. It can be a strategic decision and a business attorney should be consulted.
When ending a business, you’ll need to deal with any creditors. If you can’t pay off all your bills, you may be able to negotiate lesser payment (there are attorneys who can help you negotiate your debt). If there is no way you can pay off all your debt, the business can file for Chapter 7 bankruptcy. In addition, there may be ongoing contracts, leases, licenses, insurance policies, etc. These will have to be reviewed in order to know how to terminate them and whether there are any consequences for doing so. You will also need to pay all taxes that are due.
So let’s say you are the only one who wants out. Your partner or partners want to stay in business. Maybe you no longer agree with the way the business is being run, or maybe you’re just ready to move on. Take a look at your partnership agreement, if you have one. It should address what happens when a partner wants to withdraw.
If you don’t have an agreement, then you will have to negotiate a withdrawal on your own. The most important part, and possibly the most difficult, is figuring out what your share of the business is worth, and determining whether the remaining partners are willing to buy you out for that amount. There’s room for a lot of disagreement here, especially if your relationship with your partner or partners is strained. If you can’t come to an agreement as to how your share will be sold or transferred, you’ll have to let a judge decide.
Partnership agreements are not required, but they’re almost always a good idea. These agreements lay out the rights and responsibilities of each partner. You can specify who is going to manage what, what compensation will be, how profits and losses are divided, and what will happen when a partner wants to withdraw.
If you are starting up a partnership, you’re ahead of the game if you are drafting a partnership agreement and including instructions for partner withdrawal. While there are form agreements online, we caution against using a one-size-fits-all document. Every business and every partner relationship is different.
If you are looking to get out of a partnership, an attorney can help you enforce an agreement you already have, or figure out the fair value of your share of the business and negotiate a buyout.
There are attorneys in Chicago and throughout Illinois who handle the dissolution process for large companies as well as small businesses. If you need help getting in touch with an attorney who has the right experience for handling your unique situation, contact us. It’s completely confidential.