How to Take Action Against Joint Venture Agreement Violations
Analyze the violation., Vote to close the business., Hire expert help., File dissolution documents with the state., Cancel existing licenses and permits., Comply with employment laws., Pay taxes., Notify creditors., Recoup outstanding money owed to...
Step-by-Step Guide
-
Step 1: Analyze the violation.
Joint venture agreement violations take many forms and some are more severe than others.
When you and your partner have created a joint venture corporation together, you have taken serious steps in your partnership.
Just as corporations can be complex to form and maintain, they can also be difficult to dissolve (i.e., permanently end).
Therefore, you should only dissolve the corporation when joint venture agreement violations are so egregious that you cannot work with your partner anymore.
For example, dissolution might be warranted if your partner continually fails to inject promised capital into the joint venture, if your partner goes bankrupt, or if your partner is using confidential information in a way that hurts your other business.
In these examples, continuing to run a joint venture corporation may hurt your ability to run and maintain your other business.
If this is the case, you should consider dissolving the joint venture corporation. -
Step 2: Vote to close the business.
If you have assessed the violation and determined it is egregious enough to warrant dissolution, you will have to follow the dissolution guidelines established in your articles of incorporation.
While every corporation will draft their guidelines differently, articles of incorporation generally require a vote to dissolve the corporation.
Your guidelines may dictate that a dissolution vote can be taken by incorporators (i.e., you and your partner), elected board members, and/or shareholders.Depending on how your corporation and joint venture was set up, it may be difficult to obtain the required votes to dissolve because your partner will be responsible for up to 1/2 of the corporation.
In anticipation of this problem, your articles of incorporation should include a provision allowing one partner to unilaterally dissolve when "egregious violations" occur.
To ensure this provision is not used improperly, you should explicitly define every "egregious violation" that would allow this provision to become operational.
Once you have voted to dissolve in accordance with your articles of incorporation, you need to document this decision in a written agreement., Once you have officially voted to dissolve, you should hire experts to help you through the process.
The dissolution process can be incredibly complex, especially if you have a lot of debt, assets, employees, and tax liabilities.
It will be important to hire lawyers, accountants, business brokers, auctioneers, and tax experts.To hire these experts, first talk with your partner about the process.
If the experts will be paid with corporate funds, you and your partner might need to agree no who to hire and how much to spend.
Start by talking with a mutually agreeable lawyer.
If he or she is a qualified business lawyer, he or she will probably know other experts to reach out to. , If you fail to file dissolution documents with the secretary of state where your business was incorporated, you will continue to be liable for corporate taxes and annual filings.The process for filing dissolution documents will vary from state to state.
For example, some states require you to file articles of dissolution (a.k.a., a certificate of dissolution) before notifying creditors while others require you to file after.
In addition, some states will require "tax clearance" (i.e., pay owed taxes) before you can file your dissolution papers.
You can usually find the required dissolution forms online.
For example, in California, you can find the required filings on the secretary of state's website.Contact your secretary of state's office to determine the process where you incorporated., If you were required to obtain any permits or licenses in order to run your corporation, you will need to cancel those to avoid any further financial liability.To cancel existing licenses and permits, gather all of the valid ones and contact the agencies that issued them.
All of your licenses and permits are usually required to be kept on hand, so they should be relatively easy to find.
For example, in California, most businesses need a business license, zoning approval, and a doing business as statement, to name a few.
Most of these permits are issued by the particular city and county you are located in., If you have employees working for the joint venture corporation, you will need to pay them their final paychecks and provide them with adequate notice.
Federal and state law will dictate when you have to notify employees and how they must be paid.
For example, if you have 100 or more employees, you may have to provide at least 60 days notice before closing.
In addition, you may have to pay employees for any unused vacation or leave time they have accumulated.Make sure you check with your lawyer and business experts to ensure you are complying with the law. , You will need to file final tax returns with both the federal government and your state government.
When you file your taxes, make sure you check the boxes stating they are your final returns.
The Internal Revenue Service (IRS) and your state tax agency will likely have a checklist available for you to follow.
Apart from corporate tax filings, you may also have to make payroll tax filings if you have employees.
In addition, if you have an employer identification number (EIN), you need to cancel it with the IRS.
Doing so will notify the IRS that you no longer plan on using it., Once your taxes have been paid, you need to notify lenders and creditors that you are dissolving your business.
You should send a letter to each one explaining that you are dissolving your business, that claims need to be mailed to you within a certain period of time (usually 120 days), and that if you do not receive a timely claim it will be barred.Once the time period has ended, you need to review each claim and pay out any money owed.
If you do not have enough assets to pay every creditor, you may have to file for bankruptcy., In addition to paying out existing debts, you also need to collect any money that is owed to your business.
Once your corporation is closed, you may be unable to retrieve it.
Therefore, you need to draft request letters and send them to every person or entity that owes you money., Once all debts have been paid out and all money owed has been paid in, you can distribute the corporation's assets in accordance with your joint venture agreement.
If all of the assets have been liquidated, you will be left with a pot of money to be distributed between you and your joint venture partner.
For example, assume that after all debts and taxes have been paid, the joint venture corporation is left with $500,000.
In your joint venture agreement, you agreed that it would be split 60/40 between you and your partner.
In this scenario, you would walk away with $300,000 and your partner would get $200,000.
Remember that distributions must be reported to the IRS on your personal tax returns., Even after your business closes, you may be required to keep certain documents for years.
For example, tax and employment records may need to be kept for up to seven years after your business is dissolved.Make sure you check with the appropriate authorities and keep your business records for the required time period. -
Step 3: Hire expert help.
-
Step 4: File dissolution documents with the state.
-
Step 5: Cancel existing licenses and permits.
-
Step 6: Comply with employment laws.
-
Step 7: Pay taxes.
-
Step 8: Notify creditors.
-
Step 9: Recoup outstanding money owed to your corporation.
-
Step 10: Distribute the remaining assets.
-
Step 11: Maintain required records.
Detailed Guide
Joint venture agreement violations take many forms and some are more severe than others.
When you and your partner have created a joint venture corporation together, you have taken serious steps in your partnership.
Just as corporations can be complex to form and maintain, they can also be difficult to dissolve (i.e., permanently end).
Therefore, you should only dissolve the corporation when joint venture agreement violations are so egregious that you cannot work with your partner anymore.
For example, dissolution might be warranted if your partner continually fails to inject promised capital into the joint venture, if your partner goes bankrupt, or if your partner is using confidential information in a way that hurts your other business.
In these examples, continuing to run a joint venture corporation may hurt your ability to run and maintain your other business.
If this is the case, you should consider dissolving the joint venture corporation.
If you have assessed the violation and determined it is egregious enough to warrant dissolution, you will have to follow the dissolution guidelines established in your articles of incorporation.
While every corporation will draft their guidelines differently, articles of incorporation generally require a vote to dissolve the corporation.
Your guidelines may dictate that a dissolution vote can be taken by incorporators (i.e., you and your partner), elected board members, and/or shareholders.Depending on how your corporation and joint venture was set up, it may be difficult to obtain the required votes to dissolve because your partner will be responsible for up to 1/2 of the corporation.
In anticipation of this problem, your articles of incorporation should include a provision allowing one partner to unilaterally dissolve when "egregious violations" occur.
To ensure this provision is not used improperly, you should explicitly define every "egregious violation" that would allow this provision to become operational.
Once you have voted to dissolve in accordance with your articles of incorporation, you need to document this decision in a written agreement., Once you have officially voted to dissolve, you should hire experts to help you through the process.
The dissolution process can be incredibly complex, especially if you have a lot of debt, assets, employees, and tax liabilities.
It will be important to hire lawyers, accountants, business brokers, auctioneers, and tax experts.To hire these experts, first talk with your partner about the process.
If the experts will be paid with corporate funds, you and your partner might need to agree no who to hire and how much to spend.
Start by talking with a mutually agreeable lawyer.
If he or she is a qualified business lawyer, he or she will probably know other experts to reach out to. , If you fail to file dissolution documents with the secretary of state where your business was incorporated, you will continue to be liable for corporate taxes and annual filings.The process for filing dissolution documents will vary from state to state.
For example, some states require you to file articles of dissolution (a.k.a., a certificate of dissolution) before notifying creditors while others require you to file after.
In addition, some states will require "tax clearance" (i.e., pay owed taxes) before you can file your dissolution papers.
You can usually find the required dissolution forms online.
For example, in California, you can find the required filings on the secretary of state's website.Contact your secretary of state's office to determine the process where you incorporated., If you were required to obtain any permits or licenses in order to run your corporation, you will need to cancel those to avoid any further financial liability.To cancel existing licenses and permits, gather all of the valid ones and contact the agencies that issued them.
All of your licenses and permits are usually required to be kept on hand, so they should be relatively easy to find.
For example, in California, most businesses need a business license, zoning approval, and a doing business as statement, to name a few.
Most of these permits are issued by the particular city and county you are located in., If you have employees working for the joint venture corporation, you will need to pay them their final paychecks and provide them with adequate notice.
Federal and state law will dictate when you have to notify employees and how they must be paid.
For example, if you have 100 or more employees, you may have to provide at least 60 days notice before closing.
In addition, you may have to pay employees for any unused vacation or leave time they have accumulated.Make sure you check with your lawyer and business experts to ensure you are complying with the law. , You will need to file final tax returns with both the federal government and your state government.
When you file your taxes, make sure you check the boxes stating they are your final returns.
The Internal Revenue Service (IRS) and your state tax agency will likely have a checklist available for you to follow.
Apart from corporate tax filings, you may also have to make payroll tax filings if you have employees.
In addition, if you have an employer identification number (EIN), you need to cancel it with the IRS.
Doing so will notify the IRS that you no longer plan on using it., Once your taxes have been paid, you need to notify lenders and creditors that you are dissolving your business.
You should send a letter to each one explaining that you are dissolving your business, that claims need to be mailed to you within a certain period of time (usually 120 days), and that if you do not receive a timely claim it will be barred.Once the time period has ended, you need to review each claim and pay out any money owed.
If you do not have enough assets to pay every creditor, you may have to file for bankruptcy., In addition to paying out existing debts, you also need to collect any money that is owed to your business.
Once your corporation is closed, you may be unable to retrieve it.
Therefore, you need to draft request letters and send them to every person or entity that owes you money., Once all debts have been paid out and all money owed has been paid in, you can distribute the corporation's assets in accordance with your joint venture agreement.
If all of the assets have been liquidated, you will be left with a pot of money to be distributed between you and your joint venture partner.
For example, assume that after all debts and taxes have been paid, the joint venture corporation is left with $500,000.
In your joint venture agreement, you agreed that it would be split 60/40 between you and your partner.
In this scenario, you would walk away with $300,000 and your partner would get $200,000.
Remember that distributions must be reported to the IRS on your personal tax returns., Even after your business closes, you may be required to keep certain documents for years.
For example, tax and employment records may need to be kept for up to seven years after your business is dissolved.Make sure you check with the appropriate authorities and keep your business records for the required time period.
About the Author
Larry Wells
Professional writer focused on creating easy-to-follow cooking tutorials.
Rate This Guide
How helpful was this guide? Click to rate: