A partnership is a legally recognized business entity having at least two separate partners. Most partners sign a written partnership agreement to formalize their rights and obligations. Chapter 805 of the 2010 Illinois Code contains the Uniform Partnership Act of 1997 and sets out the relevant laws for forming, operating and ending a partnership. The repercussions of ending a partnership vary according to the size of the business, the financial position of the business and whether or not the partners can reach an amicable settlement.
Events Causing Dissolution
According to Section 901 of the Uniform Partnership Act, a partnership is dissolved if all the partners agree on its dissolution, or if an event occurs that makes it illegal to continue the business, for example, the outbreak of war. If the partnership was formed for a specific term or for the purpose of completing a particular purpose, it will dissolve upon either the completion of that term or the fulfillment of the purpose. Partners can petition the court for judicial dissolution if they are unable to reach agreement on essential issues and as a result cannot carry on the partnership business.
Statement of Dissolution
Once the partners agree on dissolution, a partner may file a statement of dissolution with the Illinois Secretary of State confirming that the partnership is winding up its business. This statement serves as notice to any former clients or business associates of the partnership. According to Section 805 of the Uniform Partnership Act, anyone who formerly dealt with the partnership is deemed to have notice of the dissolution after 90 days from the date of filing of the statement of dissolution.
When a partnership winds up, it must initially use its assets to pay any and all debts due to its creditors. If the assets are insufficient to settle all debts, each former partner is personally liable to the creditors. If any assets remain after payment of all debts, the former partners are entitled to a share of any remaining assets in accordance with their rights under the partnership agreement.
Partnerships in Illinois must file File IL-1065 – Illinois Partnership Tax Return – on an annual basis while they are still operating. If a partnership ends, it must make contact with the Illinois Department of Revenue to discuss its tax liability. It should also file a final tax form, specifying that it is a final return by checking the appropriate box.