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"Clean" Dissolution Necessary for Ending Business Partnerships

Author: Keith Huggett

Dissolving a business partnership can be delicate and complicated, especially if everyone doesn’t agree on how things should proceed. Whether or not you’re the partner driving the dissolution, you have both obligations and options. This is one of those times when it pays to be fully informed.

Ensuring a “clean” dissolution is critical to avoid future problems, so you need to protect yourself. You want to be sure that no partner can continue to incur business debt and that you won’t be responsible for another partner’s debts and liabilities, especially if the business is continuing without you.

A good partnership agreement outlines how the dissolution should proceed.

If you have no agreement, or it doesn’t address ending the business partnership, it’s imperative that you consult an attorney and tax professional to ensure your interests are fully protected. Failure to do so could put you at risk, and you don’t want some court to decide what will happen, because things might not go your way at all.

Before you do anything, consider:

• The value of your business. Typically, each partner will receive assets and be responsible for liabilities according to their percentage of ownership.
• The potential ramifications of dissolution on any existing contracts or other agreements. You don’t want to be responsible for ongoing debts after the business partnership is dissolved.

There aren’t any specific tax ramifications to dissolving a business partnership, but each state’s regulations are a bit different. Even if you don’t need to file an official dissolution document, it’s a good idea to notify everyone – including official entities, vendors and other creditors -- that the business partnership has ended.

Failure to consider – and truly understand – all the nuances of business partnership dissolution could cost you dearly. Contacting one of our experienced professionals here at The Tax Office Inc. can help you sort out the financial details and ensure you’re fully protected – before, during and after your business dissolution.

Incorporation Has Advantages and Disadvantages

Author: Keith Huggett

Ask almost anyone who has more than a few days' experience in the world of business about the benefits of business incorporation, and you are sure to hear a vague response about tax shelters and personal liability. Although those are accurate ideas, they are not the only benefits of incorporation. Similarly, there are also disadvantages associated with forming a corporation.

Benefits Of Incorporation

Business incorporation automatically increases your ability to fund a company through the sale of shares, and it positions an organization for future move into the public arena. A corporate status can also provide some protection against personal liability for the individual. Finally, some corporate structures provide limited tax benefits. Contrary to popular belief, however, not all corporate structures provide for reduced tax burdens.

Corporate Disadvantages

Corporations require a certain level of structure and the observance of formalities and meeting requirements set out in state and federal legislation. Corporations can be expensive to start and some types of corporations can provide for a heavier tax burden, especially for fledgling businesses. Corporate entities are also required to complete annual and quarterly filings with a variety of regulatory bodies, creating an added expense in labor and data maintenance.

Who Should Incorporate?

A quick Google search on business incorporation will garner millions of hits, and everyone seems to have a different idea on who should incorporate. The truth is, there is not a formula that indicates whether your company would benefit from incorporation. The decision about whether that step is right for your company at any give time depends on individual information regarding company finances, staff size, business model and the state of the market. Most companies choose to seek expert financial advice and review numerous business models prior to making the decision for incorporation.

If you are considering business incorporation and need more information about whether your company would benefit from such action, The Tax Office, Inc. can help. Contact us today for a free tax analysis to find out about our expert services.