How to Dissolve a Business Partnership

African man signing document in officeIt’s an unfortunate fact of business life that, for a wide variety of reasons, the time may come when it is necessary to wind up or dissolve a company. Here is some useful information on how to dissolve a business partnership.

In the case of a partnership, the decision may be taken by mutual consent or at the instigation of one or more partners. The process is of course easier if all partners are cooperating, but the law of partnerships in Texas can be complex, and it is always advisable to consult an attorney.

Whatever the reason for the dissolution, there are certain necessary steps that must be taken.

Review Any Written Agreement

It is not a requirement of Texas law that a business partnership agreement must be in writing, but if a written agreement exists, the first step will be to review any provisions which set out the procedure for dissolving the partnership.

In the absence of any such agreement, the relevant provisions of Texas law must be complied with. Generally this means that partners who together own at least 50% of the partnership assets must vote in favor of the dissolution.

The situation becomes more complex if there are partners who wish to leave, but the 50% threshold cannot be reached. A comprehensive partnership agreement should include provisions for those who wish to carry on the business to buy out the interests of those who wish to leave.

But if no such provisions are in place and agreement cannot be reached by negotiation, an independent mediator can often help resolve the dispute. Failing this, it may be necessary to apply to court for a Judge’s ruling, but this should be regarded as a last resort.

Paying Debts and Distributing Assets

Once agreement has been reached on the terms of the dissolution, the next step is to deal with the liabilities and assets of the partnership.

The fundamental principle of Texas law is that all creditors must be paid before any monies can be distributed to the partners. The initial capital contributed by the partners to establish the business will ordinarily be repaid next, followed finally by any entitlement to the current assets of the business.

Tax Affairs

The state and federal tax liabilities and reporting requirements for the partnership will vary depending on whether it is a general partnership (comprised of natural persons), a limited partnership (LP) or a limited liability partnership (LLP), and it is highly advisable to take independent advice on this point.


It is good commercial practice, though not a legal requirement, to notify customers and clients of a partnership’s dissolution; and you should of course notify all creditors.

You will also need to file the required notice of termination in all states in which the partnership is licensed to do business. Failure to do so may result in liabilities for failing to file returns on time, for example for Sales and Use taxes.

Contact Us

Winding up a business need not be a long and involved process, but there are some potential legal pitfalls which need to be properly addressed if a partnership is to be dissolved with the minimum of stress and expense.

The experienced business attorneys of The Tough Law Firm in Spring, TX are available right now to help you with this and any other legal issue affecting your business.

Call us at 281.681.0808 or visit us online here to schedule a consultation.

Diana Tough

Leave a Comment