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4 issues that may complicate business dissolution

On Behalf of | May 24, 2022 | Business Litigation, Contract Disputes

Business partnerships fall apart all the time for countless reasons. At some point, it just becomes clear that it’s best to move on. As the owners take steps toward dissolving the business, it’s wise to take a strategic approach to minimize disputes and avoid legal entanglements that may arise among the partners, customers or vendors.

The goal is to come away from the winding down of a company relatively unscathed by protecting your interests and avoiding personal liability. A thorough review of the start-up agreement is among the initial steps to take when dissolving a business partnership. However, disagreements may still arise, so it is best to prepare yourself for issues that you may encounter.

Likely areas of dispute

Once you and your partners decide to dissolve the business, you must be aware of the potential pitfalls and avoid them:

  • Hold-out partners: If a partner contests the business dissolution, or is ignoring the clearly defined terms in the business formation agreement, you may need to take additional steps to enforce the terms in the agreement, which could include mediating or litigating the dispute.
  • Partners’ financial liabilities: Partners have the legal responsibility to repay the debts incurred by their company in most circumstances. If one partner cannot afford to pay those debts, the remaining partner could possibly be held liable for these outstanding debts. You want to be sure that the approach you and your partners decide upon splits up these financial obligations accordingly.
  • Tax matters: Even though the company is coming to an end, there may be lingering tax issues that remain connected to the business. Be sure that your dissolution plan addresses any state or federal tax matters.
  • Contractual obligations: There may be circumstances where you have to negotiate with other businesses or customers with whom you have established contracts. Many of your existing agreements may cover what is to happen in the event a business is closed, but if not, be sure that you make proper arrangements with the impacted parties.

Protect your interests

Working under the guidance of an experienced business litigation attorney will protect your financial future. It’s essential to take the time to determine all of your options and obligations when you are contemplating ending your association with your business partners.

Not only is it the right approach, failing to take the appropriate measures can leave you potentially exposed to future legal problems. It also can have a devastating impact on your personal finances or cause other issues of concern that lead to more complex disputes. Having the right plan in place can help you avoid costly mistakes and unpredictable litigation.

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