Dissolution refers to the process of formally ending or disbanding a legal entity, such as a business or marriage. Termination refers to ending an agreement or contract.
Dissolving a Business or Partnership
There are a few ways to dissolve a business. The most common is filing a notice of dissolution. This declares the business dissolved and distributes assets. To close an LLC with the IRS depends on the LLC’s circumstances.
What is the essential difference between the dissolution and termination of a partnership? Dissolution refers to the process of formally ending or disbanding a partnership, whereas termination is the final result; the partnership has ceased all business activity and no longer exists.
A partner can dissolve a partnership by withdrawing or dying. Withdrawal of one partner when two remain may modify and continue the partnership. If the last partner withdraws, it terminates the partnership.
Tax Implications and Continuing Business
Dissolution has tax implications. In a partnership, partners share capital gains/losses, potentially enabling deductions. For a firm, corporate taxes apply. Taxes before dissolution must be paid before final closure.
Dissolving a partnership means partners split profits, gains, and losses equally. Causes include a partner ceasing to be a partner. Dissolution discontinues the entire firm and partner relationships, although it may allow the business to continue under remaining partners.
Contracts: Termination and Cancellation
Is a contract dissolution or termination? Termination refers to ending an agreement or contract.
What is the difference between termination, cancellation, and dissolution? Dissolution is a process members of an LLC will go through to cancel with the state and terminate the LLC’s existence. Cancellation terminates the rights and powers of an LLC.
Can a contract be terminated without a clause? Most contracts include a termination clause, but if there isn’t one, legal doctrines can help end an agreement early. Some contracts terminate after a period or event completion.
The 2015 Code does not define contract termination and cancellation. Instead, it provides cases under which a contract will be terminated or cancelled.