I have owned my own business for 16 years. It's a two-man operation, consisting of myself and my partner of four years. I'm ready for retirement and would like to dissolve this partnership. Are there any forms that I can download online?
-- R.L., New York City
Dissolving a general partnership is a fairly straightforward process, experts say. "A general partnership is an informal business entity and could be formed by a handshake or by merely referring to each other in business and in public as partners," says Brian T. Whitlock, a tax attorney, accountant and partner at Blackman Kallick, based in Chicago.
With such an informal arrangement, there will be no official business entity for you to dissolve. If you have been operating your partnership under a business name, check with local authorities about filing a termination of the assumed name. This may require publishing a legal notice in your local newspaper.
If you've formalized the partnership as a corporation, limited-liability company, or limited partnership, Whitlock says, dissolution will be more complex. These formal entities are typically registered with the secretary of state and must be formally dissolved. In New York State, "a domestic business corporation may be voluntarily dissolved by filing a certificate of dissolution pursuant to Section 1003 of the Business Corporation Law," according to the state's Web site which includes contact information. You can click here to download forms and instructions.
TAX MATTERS. If your company is registered to do business in any other state, you should notify those states of the partnership dissolution as well, says Gary Zwick, an attorney specializing in small business and taxation at Walter & Haverfield in Cleveland. "The state will also likely [require you to] notify all of the various taxing agencies and the worker's compensation bureau...and get a release from them that this business is current on all payments and filings. If that's done, the state will issue a certificate of dissolution."
From a tax perspective, don't neglect to file a final partnership income tax return with the Internal Revenue Service and a final state income tax return as well. "Checking the box marked 'final' is good enough to remove you from [the tax rolls] in the future," Whitlock says. "If you file sales tax, payroll tax, or unemployment tax returns, you should file final returns with them as well."
If you're selling any portion of your business, the local taxing units will likely require you to hold back some of the sale proceeds under the local "bulk-sales" laws, until they can determine that you don't have any outstanding tax liabilities, he adds.
SPREADING THE WORD. Outside of legal requirements, retirement affords you an opportunity to notify your customers and vendors that you're leaving the company and thank them for their loyalty and trust. Make it clear that you will no longer be affiliated with the business. This helps protect you from any legal liability stemming from the actions of your partner or former company in the future. Even if there's no formal registration of your partnership, you may want to file a notice in your local paper advising the general public of the dissolution of your partnership, Zwick says.
Sound complicated? This can be a tricky process, and involving an expert is definitely a good idea, our experts say. "The best thing for the partners to do is to contact their lawyers to work out all the details," says Myron Kove, a New York City-based business attorney. Wrapping up your business in a professional manner will pay off with peace of mind during your retirement. Best of luck.