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A written partnership agreement is always beneficial when starting a new business but they are not required. Often, people start a new business partnership with great enthusiasm and optimism. They usually don’t expect that a serious problem may arise that requires them to dissolve a business partnership. If your business partnership exists without a formal agreement and no written governing documents it is considered a general partnership and it will be governed by state law in Washington as well as any applicable case law.

Ending a Business Partnership

Business partners may find themselves at odds for any number of reasons and often the only solution is to end the partnership. Sometimes this is relatively simple- the partners might agree that one will buy out another or they mutually agree to sell the business or end the partnership. Unfortunately, amicable solutions are not always possible and it may become necessary to ask the courts to get involved. 

No Formal Partnership Agreement

In cases not governed by a formal partnership agreement, the courts can expel or dissolve a business in several instances where a partner:

– Is found to have engaged in wrongful conduct that adversely and materially affected the partnership business

– Committed a material breach of a legal duty to the partnership or other partners

– Engaged in conduct relating to the business that makes it not reasonably practicable to carry on with that partner

In determining whether to dissociate a partner or dissolve a partnership business in such a legal action, the courts will look to the facts of the individual case to determine whether the partner’s conduct rises to the level required by the statute. 

Winding Up a Business and Tax Liability 

When a partnership dissolves it must still complete the process of winding up the business of the partnership. An accounting must be made of all the partnership’s assets and debts. This will include all partnership assets and outstanding business debts or other obligations. This includes, but is not limited to, items such as payroll, real property, inventory and intellectual property. If the assets of the partnership cannot cover the obligations then the individual partners are responsible for the remainder. If the partnership assets exceed the obligations the remainder is distributed to the partners. The partnership will additionally need to file IRS Form 1065 on behalf of the business and the partners will be responsible for their individual taxes related to operating the business.

Dissolving a business partnership can be fraught with unexpected difficulties. An experienced attorney can guide you through this process. Please contact us at info@brumleylawfirm.com or (2530 236-4079 if you have questions about your business.

How do I end my business partnership if we never made a formal agreement?

If you have questions about your case, please contact us at Info@brumleylawfirm.com or (253) 236-4079.

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