A general partnership is an extension of the partners; it is not a business that is a distinct entity separate from its owners. This means the partners generally have equal control of the business and are personally liable for all of the business’s debts. Also, because a partnership is not a separate, transferable entity, you cannot sell the business. You can only sell the business’s assets.
Review the partnership agreement. A partnership agreement is a set of rules agreed upon by the partners that define how the business will address situations, such as selling the business. Follow any procedure defined by the agreement without deviation.
Read More: What Constitutes a Legally Binding Business Partnership?
Hold a partnership meeting and take a vote on whether to dissolve the partnership and sell the assets. If the partnership agreement does not provide directions on how to call a meeting or how many votes it takes to dissolve the business, you must comply with state law. If you want to sell the entirety of the business, you generally need unanimous agreement.
Determine which assets will be sold as part of the business. A business may have a lot of assets, ranging from tangible machinery used in production to intangible goods such as customer lists and licenses. The future plans of the other partners will help determine which assets are to be sold. If one partner plans to stay in the industry, she may not want to sell off the partnership’s customer list.
Pay off all the business's debts. Sometimes, for business reasons, partners may personally co-sign debts that are attributed to the business; these should be paid off by the partnership.
Establish a value for the business. One valuation method is to determine the current market value for all of the tangible assets of the partnership and use that as the price. If you plan on transferring intangible assets, such as customer lists, the value of the partnership’s combined tangible assets would be enhanced. In that situation, you may want to base your price on the projected sales or profits the new owner would earn with those goods.
Identify a buyer. Consider approaching competitors or businesses that are in related industries that may want to expand.
Draft a purchase agreement. The purchase agreement should identify what is being sold, the sale price and who is purchasing the goods. In addition to these basic terms, the buyer may request a non-compete clause that would prevent you and your partners from working in the industry for a period of time or within a certain geographic area, preventing you from taking your former customers away from the buyer.
Sign the agreement and transfer the purchase price. All partners should sign the agreement as well as a duly appointed representative of the entity that is buying the partnership’s assets.
Close all accounts that are in the name of the partnership or secured by the partners for the partnership. Close down all partnership accounts by distributing all funds in those accounts to the partners. Notify any state or municipality you have an account or license with that you are dissolving the partnership.
Prepare the final tax returns for the business and distribute K-1s to the sellers. The federal partnership return is Form 1065. The returns should cover the beginning of the tax year to the day the partnership terminated.
John Cromwell specializes in financial, legal and small business issues. Cromwell holds a bachelor's and master's degree in accounting, as well as a Juris Doctor. He is currently a co-founder of two businesses.