If you’re in a business partnership in Texas that is coming to an end, and you or your partner wants to continue operating the business, it should be converted into a sole proprietorship. Ensuring this change in the entity is handled correctly is essential. Addressing elements, such as the client base, accounting and all legalities, is critical in maintaining a seamless transition. Knowing the steps to take to handle this process can make it more efficient to complete it effectively.
Reviewing the partnership agreement and determining who will continue operations
One of the first steps you need to take when splitting up a partnership is to review the agreement and follow all of the provisions and terms that it contains. Determining if you or your current partner will handle the responsibilities for operations of the business after the split is the next step to take. In some cases, this may still leave several outstanding jobs that will need to be completed.
Alerting customers and preparing paperwork for the switch
Alerting every customer or client about the dissolution of the partnership and letting them know who will be handling the business after the switch to a sole proprietorship is the next step to take in the process. All financial accounts (bank accounts, loans, lines of credit, guaranties, credit cards, etc.) should be closed, paid, and cancelled as appropriate; otherwise the partners may be liable for obligations of the sole proprietorship. In addition, preparing and filing financial information with the IRS should be completed to let them know of the dissolution. You and the other partners will also need to file separate K-1 forms.
Completing the dissolution of the partnership
Complying with all federal, state and local laws regarding the partnership’s dissolution should be done. Finally, obtaining a new employer identification number with the IRS and all professional licensing and business tax information should be completed for the sole proprietorship.