Business Partnership Separation Agreement Template
When the object for which the partnership was formed is achieved, a partnership dissolution agreement comes in handy. It aids in avoiding misunderstandings, settling the existing obligations of the partners, and planning on the distribution of assets among all the partners. A partnership dissolution agreement is thus useful when one wants to end a partnership. It also signifies all partners’ decision to end the joint business.
Further, a partnership dissolution agreement does not immediately end a partnership. The partnership continues till the partnership goes through the process of settling its debts. It also stays pending till the business terminates its legal existence and distributes the remaining company assets. The partnership dissolution agreement is particularly helpful when the partnership has no original partnership agreement. Also, if the partnership agreement does not provide the terms for terminating the partnership. Also, a partnership dissolution agreement clearly outlines the responsibilities, timelines and roles of every partner. This eases termination of a business relationship.
Additionally, through formally dissolving the partnership, the partners can ensure that they are not liable for the partnership’s debts. Also, no partner can bind the other partners to any deal without their knowledge or agreement.
Partnership Dissolution
The dissolution of a partnership generally happens when one of the partners stops being a member of the firm. However, this only applies in general partnerships and no limited liability partnerships. Dissolution is different from termination and the winding up of a partnership. Though the phrase “dissolution” could mean termination, dissolution marks the beginning of the process that eventually terminates the partnership.
In essence, dissolution means the change in relations among the partners. Accordingly, if a partner resigns or the partnership expels a partner, the partnership stands dissolved legally. Other causes of dissolution include death or bankruptcy of a partner, a partnership dissolution agreement, or an event that declares the partnership illegal. For example, if the partnership runs a gambling casino and gambling is subsequently rendered unlawful. The partnership will then be rendered dissolved legally. A partner may also withdraw from the partnership thus prompting the drafting of a partnership dissolution agreement. However, if a partner withdraws from the partnership in violation of the partnership agreement, the partners could be held liable for damages. This is because of the unauthorized and untimely withdrawal.
After a partnership dissolution agreement is formulated, the remaining partners could proceed with the partnership business. However, the partnership will be legally new and different. A partnership agreement could provide for a partner to leave the partnership without dissolving it but only if the departing partner’s share is bought by the remaining partners. However, unless the partnership agreement provides otherwise, dissolutions starts when the partnership is wound up and terminated.
How to use a Partnership Dissolution Agreement
A partnership dissolution agreement is formulated as the first step in dissolving a partnership. It creates the timeline and strategy for ending up the partnership. The partnership dissolution agreement covers various aspects. They include:
- Partnership name. This entails the legal name under which the partnership has been doing business.
- Purpose of the partnership. This section briefly describes the business that the partnership has been conducting.
- Partner information. The legal addresses and names of every partner involved in the partnership are included. Also, the management roles of all partners.
- Dissolution strategy. This section of a partnership dissolution agreement comprises information on when and how a partnership will be dissolved. This includes the date the partnership will stop operating and a description of the paperwork that will be filed with the appropriate agencies. Such include the Department of the Treasury or Secretary of State’s Office.
- The liquidation plan. This part outlines the process of liquidating the partnership’s assets. This includes appointing a partner in charge of collection and sale of assets. The section will also include the selection of accountants to formulate the partnership’s statement of account.
- Assets division. This section of the partnership dissolution agreement includes how the remaining assets of the partnership will be evenly distribute and divided among the partners.
Elements of a Partnership Dissolution Agreement
There are certain core sections that a partnership dissolution agreement should contain and they include:
- Introduction of Partners
This section should identify the document as a partnership dissolution agreement. The date on which the agreement is signed should also be indicated and the name of organization. If there are more partners involved, they should be added.
- Recitals
This part includes the “whereas” clauses and offers the public background information about the partners. The blanks that should be filled in include:
- A brief description of the partnership’s purpose.
- Total amount of capital invested by the partners in the partnership.
- Language of the partnership formation agreement.
- Dissolution
This is the first section and gives details of the partnership’s existence as a legal entity. In a partnership dissolution agreement template, three blanks are provided. They include name of the state where the entity is established, name of partnership, and current principal address of the partnership.
- Winding up
This is the second section of a partnership dissolution agreement. It provides for the specifics of the dissolution and explains what assets each partner will assume. It also apportions liabilities as per the interests of the partners.
- Liquidating partners
This section allows the partners to assign key responsibilities for the administration of dissolutions tasks.
- Custodian of partnership books
This is a discretionary provision that permits the partners to decide who will be responsible for the partnership’s records after dissolution.
- Indemnification
As part of dissolution, partners agree to split the assets and liabilities of the partnership on a pro rata basis. The section ensures no party defaults on the shared obligations.
- Release and discharge
This section indicates that after dissolution, none of the partners can institute a claim against another for issues related to partnership. The section, however, permits the parties to institute a suit under the agreement of dissolution.
- Amendments
This section of a partnership dissolution agreement indicates the changes made to the agreement which must be in writing and signed by all partners.
- Governing law
This section allows the parties to select the state laws that will be used to interpret the document. However, this does not serve as a venue provision. It does not include the jurisdiction in which a claim is brought.
- No implied waiver
Even if a party allows another to break or ignore obligations under the agreement, a party does not waive future rights. Such rights include requiring another party to fulfill other obligations.
- Electronic Signatures/Counterparts
This section provides that even if the partners sign the partnership dissolution agreement from different location or use electronic devices like computers, all separate pieces will be part of the agreement. In the contemporary world, the signatories are often in different cities let alone different rooms. Such a provision ensures the business runs efficiently without entirely compromising the agreement.
- Severability
This section protects the terms of the agreement despite one of the parts being invalidates. For instance, if a state law is enacted hindering the choice-of-law clauses, it will not render the entire agreement void. Rather, the particular section will be invalidated and the rest of the sections remain enforceable.
- Headings
Headings and nots at the beginning of every section organize the document and are considered operational parts of the agreement.
- Entire Agreement
The partners agreeing that the document that they are signing is a partnership dissolution agreement should be clear. However, the inclusion of this provision will not prevent a partner from contending the other sections are enforceable.
Process after Drafting of the Partnership Dissolution Agreement
Upon completion of the partnership dissolution agreement, all partners ought to sign and date the agreement and retain copies for their individual records. As earlier stated, the partnership dissolution agreement does not automatically end the partnership. The partnership continues to operate till all the necessary steps ate completed.
Further, every partner should have a chance to review the partnership dissolution agreement and seek legal advice. This lessens the chances of the partners claiming that they did not understand the partnership dissolution agreement terms. After the agreement is reviewed, all the partners should sign the document.
Applicable Law
The dissolution of a partnership is governed by state law. However, different stated have distinct requirements to lawfully end a partnership. Some states require that documents such as a statement of dissolution is completed by the partnership. It is then filed with the relevant state agencies. Other sates also require that the partnership publishes a notice of dissolution of the partnership in newspapers of public circulation. The rules and regulations should also be consulted to ensure the partnership completes all the steps required to dissolve the partnership in the state where the business is being conducted.
References
https://www.templateroller.com
https://www.business-in-a-box.com/dissolution
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