Ending your New York business partnership will involve a variety of tasks. Here's a brief overview of the process for dissolving or terminating a general partnership in New York. This article covers general partnerships where there is no specified term (at-will partnerships) and where the dissolution is by mutual, voluntary decision of the partners.

1. Review Your Partnership Agreement

As with most important matters affecting your partnership, the first step in dissolving your partnership is to check your partnership agreement. While a written partnership agreement is not required in New York, ideally, you and your partners would have prepared a partnership agreement when you first formed your partnership or at some later point in time. Dissolution provisions in a written partnership agreement are often crucial to a smooth dissolution. If you don't have a preexisting partnership agreement, you'll have to fall back on the default provisions of New York state partnership law, the Uniform Partnership Act.

Along with reviewing the partnership agreement, it's a good idea for all of the partners to discuss the dissolution. Two of the key points to address are:

• paying outstanding partnership debts, and
• how remaining partnership assets, if any, will be divided among the partners.

If you have a well-written partnership agreement, it should provide guidance on these points. You may be able to simply follow what's laid out in the agreement. On the other hand, there may be cases where you'll want individual partners to pay particular debts, and those responsibilities are not covered by the partnership agreement. If so, you'll now want to come to an agreement about who will pay what, and put that agreement in writing.

2. Take a Vote or Action to Dissolve

Assuming you have a partnership agreement and it contains provisions on how to dissolve, you should follow those provisions. In most cases, dissolution provisions in a partnership agreement will state that all or a majority of partners must consent before the partnership can dissolve. In such cases, you should have all partners vote on a resolution to dissolve the partnership. Ideally, there will be the unanimous or majority consent required by the agreement. You should record in writing the results of the vote to dissolve.

If you want to dissolve your partnership because of a disagreement among the partners, and not all the partners are in agreement regarding dissolution, you usually have a couple options. First, the partnership agreement may provide a solution. For example, there often is an option for partners who want to continue the business to buy out one or more partners who want to leave. Alternatively, you could bring in an independent mediator to try to help resolve the disagreements. Ultimately, however, if the partners can't come to an agreement after trying other options, you'll have to fall back on going to court and getting a judge to decide how the dissolution will proceed. You should try to avoid going to court, but if you really have no choice, you and your fellow partners should be represented by lawyers.

If you don't have a partnership agreement, you'll have to rely on the Partnership Act. The Act provides that an at-will partnership can be dissolved in a number of ways, including by the express will of any partner at any time. This usually means that a partner can dissolve a partnership by providing written notice of his or her intent to dissolve to the other partners.

3. Pay Debts and Distribute Assets (Wind Up)

After having taken the necessary action to dissolve your partnership either under the rules of the partnership agreement, or, in the absence of an agreement, the Partnership Act, you need to take some additional steps to close down the business. These steps are often referred to as winding up the partnership. In general, the steps will include:

• completing any partnership work in progress
• selling some or all assets (if the partners want and have agreed to do so)
• paying debts, and
• distributing any remaining assets to the partners.

It's particularly important that all debts are paid before you make any distributions to the partners. New York's Partnership Act has rules for the order in which people get paid when winding up a partnership. In general:

• first, outside creditors must be paid
• second, creditors who are also partners must be paid
• third, partners are entitled to receive back their capital contributions, and
• if anything remains, the partners are entitled to distributions.

4. No State Filing Required

In New York, general partnerships are not required to file a form with the Department of State (DOS) when they dissolve.

5. Notify Creditors, Customers, Clients, and Suppliers

While not a legal requirement, you should notify creditors, customers, and others that your general partnership is dissolving. In some cases, if one of your partners makes a deal with someone after dissolution, you and your fellow partners could be on the hook for that deal—including any debts involved—if the other party didn't have notice of the dissolution.

There are several options for how to give creditors and others notice of the dissolution. One option is to send them written notification. Another good option, mentioned in New York's Partnership Act, is to publish a notice of dissolution in a newspaper of general circulation in each of the places where the partnership regularly did business.

6. Final Tax Issues

New York does not require that you obtain tax clearance before dissolving your partnership. The state's Department of Taxation and Finance (DOTF) does advise you to take care of the following tax matters when closing your partnership:

• file a final Form IT-204, Partnership Return, and make sure to check the "Final return" box
• file a final Form NYS-45, Quarterly Combined Withholding, Wage Reporting and Unemployment Insurance Return, if you had employees and have ceased paying wages
• contact the New York State Department of Labor regarding a change in your unemployment insurance
• file a final sales tax return if you're registered for sales tax purposes and destroy your Certificate of Authority, and
• if you have a Certificate of Registration or any other license or certificate, surrender these documents.

For information on filing a final sales tax return, check Tax Bulletin ST-265, which you can find in the Publications section of the DOTF website.

For federal tax purposes, check the "final return" box on your IRS Form 1065. Under IRS rules, if your partnership terminates before the end of its normal tax year, the final federal return is due by 15th day of the fourth month following the termination date.

7. Out-of-State Registrations

Is your partnership registered or qualified to do business in other states? If so, you must file separate forms to terminate your right to conduct business in those states. Depending on the states involved, the form might be called a termination of registration, certificate of termination of existence, application of withdrawal, or certificate of surrender of right to transact business. Failure to file the additional termination forms means you'll continue to be liable for annual report fees and minimum business taxes.

Additional Information

You can find additional information on the DOS website and DOTF website. For information on dissolving and winding up partnerships formed in other states, check Nolo's 50-state series on dissolving partnerships.

Dissolving and winding up your partnership is only one piece of the process of closing your business. For further, general guidance on many of the other steps involved, check Nolo's 20-point checklist for closing a business and the Nolo article on what you need to know about closing a business.