It is not always necessary to formally dissolve a business. The owner may simply stop trading, pay off business debts, lodge a final tax return, sell off excess stock and equipment, move out of leased premises and perhaps produce a final profit and loss statement for the business. A registered business name will lapse three years after registration.
Where a partnership owns a business it is advisable to formally dissolve the partnership once the business ceases rather than allow it to continue. Otherwise all partners remain potentially responsible for any debts incurred on behalf of the partnership by the other partners. Once a partnership stops its activities, it is arguable that partners cannot enter into contracts on behalf of the other partners. However, this may have to be established in court. To avoid problems it is prudent to dissolve a partnership that is no longer needed.
Dissolution of a partnership is usually done by an accountant, although the partners can dissolve themselves. The debts must be settled from all of the assets and income of the partnership. Any surplus assets are then distributed to the partners as set out in their partnership agreement. A Notice of Dissolution is needed and the procedure for dissolving a partnership is similar to the one for resigning as a partner, see resignation of a partner.
It must also be decided whether to dissolve a company that owned the business. The company can be kept in existence for use in a future venture, or it can be kept in existence to carry forward its tax deductions. Otherwise it can be sold to a purchaser who can take advantage of its tax deductions. If it is dissolved, an accountant should be appointed to gather all its assets and settle all its debts. Any surplus of funds can be distributed to the shareholders. Whoever engaged the accountant's services will be responsible for the accountant's fees, but generally they are paid from the company's assets.
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