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How assets and liabilities are split when a partnership dissolves

On Behalf of | Feb 14, 2024 | Business Law

Partnerships can be a useful way to start and run a New York business. However, disagreements, disputes, retirements and the desire to move on might necessitate a dissolution of the partnership. Regardless of whether the end of the partnership is contentious or amicable, it is important to know how assets and liabilities will be distributed under state law.

With a partnership, the assets are the partnership property and contributions the partners made to the business. For example, if there was office space or a factory, there will be items that are necessary for the operation of the business. Assets can include anything including bank accounts, real estate, furniture, equipment, automobiles and more.

Once the parties have determined who is entitled to what and distributed the assets, outstanding debt will need to be repaid. Many businesses have loans to continue operation. They will have creditors who must be paid back. The priority will be for outside creditors to be repaid first. Then partners who are creditors must be repaid. If there were contributions, partners who made them will be repaid. The remainder will be split by the partners.

In some cases, the law might not be clear cut as there was a separate agreement among the partners. If one partner contributed a bulk of the capital at the start, they could be entitled to receive a greater share based on the contract. Scrutinizing any contract is key as it will undoubtedly impact how distributions are made and debts are repaid.

Be protected when dissolving a partnership

These cases can be complicated and even in situations where the partners are departing as friends, it is important to be protected. The law dictates how assets and liabilities are divided, but there might have been agreements in place that detail who is entitled to what and which person is responsible for that which is owed.

Whether it is a case that requires business litigation, negotiation or a simple ending of the partnership, it is important to have a full grasp of business law. This can be beneficial financially, for the future of this business and with other business endeavors. Being protected is key and should be a priority from the beginning.