A letter of dissolution is an official notification of the end of a business relationship with a partner, client, vendor, or another party. The content of this letter depends on the type of business arrangement that is ending and legal regulations that must be satisfied based on the industry, location, and other factors.
What is a Dissolution Letter?
Also known as a letter of dissolution, a dissolution letter is a document that is prepared by one entity to inform another entity that the current business relationship will not continue.
The causes for the split and the date on which it will become final are frequently included in the letter’s phrasing. A business colleague, a company, or even a consumer and a vendor may be the recipients of such a letter.
Understanding Dissolution Letter
Companies that are preparing to cease operations may also prepare and distribute a dissolution letter to its customers. Here, the purpose is usually to notify clients of the impending closure of the company, including the date that the business will cease to be recognized as a legal entity.
In situations where arrangements have been made to transfer client accounts to other suppliers or vendors, the dissolution letter will often include contact information for that new supplier.
In some countries, specific elements must be included in a dissolution letter in order for the document to be recognized as legal and binding. For this reason, review of the letter by legal counsel prior to mailing the document is usually a good idea.
Attorneys will be aware of what information must be included in order for the document to serve as an official notice of dissolution of a business relationship, and what other documents must be prepared and filed in order to completely end the connection between the sender and the recipient.
Basic Letter of Dissolution Elements
Although the content will vary, certain elements should be included in every letter of dissolution. These include:
- The name of the recipient and the name of the person sending the letter
- The purpose of the letter, including the relationship to be terminated and the date of termination, stated in the first paragraph
- Information about the specific reasons for dissolution, including but not limited to bankruptcy, retirement, the death of a partner, or business disagreement
- Conditions about settling outstanding debts and obligations
- The chapters and sections of the partnership agreement that refer to dissolution procedures, which give your letter legal support and allow it to be recognized as legally binding by the court
- The names of open vendor and business contracts and the intent to close these contracts before the dissolution
- The value of all pending contracts
Example Of Dissolution Letter
One of the more common examples of a dissolution letter has to do with terminating an existing contract. Often, the termination is due to some breach of the terms and provisions found in the agreement that governs the relationship.
In this scenario, a client may notify a vendor or supplier that due to an inability of the vendor to comply with the provisions of the contract, the client is choosing to dissolve or terminate their working relationship.
The text of the letter usually cites specific terms in the contract that were not observed, and also provides a specific date at which the client will no longer do business with the vendor.
Another example of a dissolution letter has to do with the termination of a contractual relationship between business partners. Often, the idea here is to sever the relationship due to differences on how to transact business, or the direction that the joint venture should take.
As with other forms of this type of letter, the sender will identify specific reasons for the dissolution of the partnership and the date that the connection is formally concluded.
Other content, such as defining conditions regarding the settling of any debt that was acquired during the joint venture, may also be included in the text of the dissolution letter, or addressed in more detail in other documents accompanying the letter.
Types of Dissolution Letters
Letters of dissolution are used for a range of business arrangements, including relationships between business partners, among corporations, and with suppliers and vendors. Some of the most common uses for this type of document include:
- Terminating an existing contract, often because of a breach of its terms
- Terminating a relationship with a business partner because of differences in opinion on how to conduct business
- Notifying customers, vendors, and stakeholders that the company is ending operations and discontinuing its status as a legal entity
Dissolving a Partnership
Partnerships can be dissolved at any time by either partner, even if all other partners are opposed. Before terminating a business partnership, it is critical to study the partnership agreement and its dissolution process.
Other partners will find it more difficult to prevent the business from closing if the dissolution is conducted properly with a letter that emphasizes the legal ramifications of the breakup.
Use the full legal name of each business partner to avoid legal ambiguity that can hinder the dissolution process. This also conveys the professional and serious tone of the letter’s content.
Avoid using emotional or inflammatory language in a dissolution letter. This can lessen the anger partners may feel upon learning of your intention to end the partnership.
In addition, emotional statements may leave legal room for the partners to argue against the dissolution. If they decide to sue, the resulting legal battle could drag on for months or years.
Steps To Dissolve a Corporation
In most states, the required steps to dissolve your business entity include:
- Email is the most common technique of alerting board members of the decision to dissolve.
- Having the board members vote to dissolve the corporation
- Submission of a Letter of Dissolution to the Secretary of State
- Filing a dissolution notice with the state attorney general
- Dissolution of the Attorney General Notice to the Secretary of State
- Resolving outstanding payments and terminating existing contracts
- The remaining assets will be distributed in accordance with the original contract conditions.
- To give the Attorney General’s Office with information about the conveyance or transfer of assets.
Dissolving a Minnesota Corporation
Before dissolving a corporation, Minnesota law, like those of other states, requires a board meeting and vote. Without a vote, a person or a small group of members cannot decide to close the firm.
The minutes from the meeting at which the vote takes place must include the date and location of the meeting. Submit a copy of the minutes to the state attorney general along with a Notice of Intent to Dissolve.
A motion to dissolve the corporation must be proposed and approved by a majority of the officers present at the meeting. If the resolution asks for the dissolution of the corporation, it must clearly specify how assets will be dispersed. The organization’s bylaws must be obeyed when implementing this technique.
You should also resolve to designate an individual responsible to sign and submit dissolution paperwork. After the dissolution resolution is passed, the formal business must be limited to wrapping up the business matters.
In short, a dissolution letter is a letter that can be used when a company or organization dissolves and can be issued by any official authorized person in charge of the organization.
This letter will be sent to all shareholders who own any stock. This letter will make them aware of the fact that the business has been dissolved.
These terms are often used interchangeably, but have distinct legal meanings. Dissolution is the winding up of the affairs of the entity in advance of the termination of the entity. Termination of the entity occurs when the entity ceases to legally exist.
Reasons for Dissolution of partnership
Death of a partner. Admission of a new partner. Insolvency of an existing partner. Early retirement of a partner.
Dissolution of corporation refers to the closing of a corporate entity which can be a complex process. Ending a corporation becomes more complex with more owners and more assets.
In law, dissolution is any of several legal events that terminate a legal entity or agreement such as a marriage, adoption, corporation, or union.