Breaking up is hard to do…

(16 /10 /2014)

Breaking up with someone is hard to do – the empty feeling in your heart; the stress of separating assets; moving out and away from your partner and how you’ll survive on your own.  These issues are not unique to a breakdown in personal relationships; they also apply when a business partnership breaks down or when a business is no longer viable.  Unfortunately, in today’s economic climate, it is not uncommon to see businesses shutting up shop and the hospitality industry is certainly not immune to hard times.  There are a number of factors that need to be considered when closing down a business or dissolving a partnership but there are a number of things that can be put in place before any nastiness occurs to ensure your heart isn’t completely shattered at the end of the process.

So, why do businesses close down?  There are many, many reasons but some common ones include an irreparable breakdown in a business partnership; the death of a business partner; the business is no longer financially viable; or the business arrangement has reached its natural term.  But before any of these scenarios are played out, there is one way to ensure the process of closing down a small business remains amicable – it’s called a partnership agreement.  A good partnership agreement, which should be drawn up by a qualified lawyer experienced in business partnerships and joint ventures, should outline the type of business of the partnership, a coffee shop for example; it should specify management of the accounts for the partnership, just like in a household where one partner might be responsible for paying bills and keeping track of the credit card; how the partnership might be terminated, such as through the death of the business partner; the sale of partnership property; and the term of the partnership, or length of time that the business will operate, if appropriate.  These few key items will help ensure all parties involved in any of these situations, will still be talking once it’s done and dusted.

With the partnership agreement in place, a plan to officially dissolve a partnership can then be developed and it’s a good idea to work with a business adviser so that all options can be considered.  For example, I have recently witnessed a local hot chicken bar change hands as a result of the death of the one of the business partners.  Unfortunately, partner two decided the business was too much for her but instead of shutting down completely, she sold the business as a “going concern”.  This was a good way for the partner to pay off debts, walk away from the business with a little bit of cash and with the knowledge that she had honoured the partnership agreement that she and her partner had in place.  The business has since been rebranded and is doing well.

If selling a business as a going concern is not an option, perhaps consider buying the partner out as this could then allow you to be the sole owner of the business or enable you to bring in a new partner.  In this case, you may be required to give written notice to your business partner.  However, whatever route you decide on, there are a number of issues that need to be considered and steps taken to wind the business up.  Firstly, if in Queensland, the business name and ABN must be cancelled with 28 days and the company deregistered with ASIC.  Staff must be notified of employment termination in writing and employment entitlements such as leave, super and termination payments must be provided.  All tax issues – GST, FBT – must be finalised and insurance must be cancelled, although it is necessary to maintain “run-off cover” to protect against any future litigation.  Water, gas, electricity, phone accounts must be finalised and disconnected, just as it would when you move house.  Finally, you are required by law to store records for a minimum of 5 years so it would be wise to have secure storage for these items.

Breaking up is gut-wrenching and while it is not pleasant to think about, it is well worth taking the time to develop a partnership agreement before entering into a business partnership.  Both the Federal and Queensland State Governments have comprehensive business and industry portals designed to help small business – check them out; and then if you do have to go through a “divorce”, hopefully by the end of it, you’ll still have your heart in one fully-functioning piece.

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