Partnership Dissolution Agreement


When one is starting a business partnership, he or she can easily be swept up in the likelihood of the new business succeeding. Hence one ignores and overlooks the possibility that the new partnership may fail to work out. Further, starting a limited liability company or partnership has various risks. If the risks are not correctly handles, it could lead in the dissolution of the partnership, broken relations, and lawsuits.

Therefore, it is important to not only have a partnership agreement but also a partnership dissolution agreement. The preceding is notwithstanding the fact that one may partner with close family members or friends whom they have a lot of trust in. It is also significant to be conversant with the procedure of dissolving a partnership agreement. This comes in handy when one of the partners loses interest in the business entity. It is also helpful when conflicts arise and can not be resolves or the entity’s operations fail to work out as planned.

The procedure of dissolving a partnership

Though the procedure of dissolving a partnership is not as simple as halting operation, it does not have to be complicated. Once a partnership is dissolved, the partners follow the terms and guidelines contained in the partnership dissolution agreement. An effective partnership dissolution agreement contains terms such as persons are no longer partners legally. Further, that the partnership continues till the debts of the business are settled. A partnership dissolution agreement also provides that the legal existence of the business entity is terminated. Moreover, the partnership’s remaining assets are distributed among the partners.

Steps to follow when dissolving a partnership

  1. Review the partnership dissolution agreement

If partners of a partnership decide to terminate their entity, they should review the partnership dissolution agreement. This is to ensure that they follow the procedure and guidelines in the document. Normally, most partnership dissolution agreements contain a requirement that there should be a majority vote to dissolve the business.

  1. Discuss the decision to dissolve with the rest of the partners

Having started the business entity with the partners, one should have a candid discussion with them regarding dissolving it. Though the partnership dissolution agreement covers the dissolution process the partners should all discuss their obligations. Such include the debts of the partnership, liabilities, and how the business will be wound up.

  1. Filing a dissolution form

The partners need to file a form regarding the dissolution of the partnership with the state in which the business is based. The preceding will serve as a formal announcement of the partnership. Further, it aids in making it clear that the partners are not in the partnership nor liable for the debts it incurs. The form also serves as a suitable safeguard measure to take.

  1. Notifying others

Other partis to the dissolution such as customers or clients, employees, landlord, and government entities such as the IRS, should be informed. This is because they contributed to the operations of the entity, registration of the business, and issuance of licenses.

  1. Settling and closing all accounts

An effective partnership dissolution agreement provides that before dissolution, all creditors should be informed. The partners should also ensure that they pay all their debts and close all the ban accounts related to the partnership’s conduct of business. The assets of the partnership should also be distributed following the partnership agreement or based on the agreement that exists between the partners. If there are insufficient funds to pay for the liabilities and debts of the partnership, one should seek legal advice from a legal attorney.

To ensure that the partners are upholding the legal obligations and that all the necessary steps are taken, the partners could consult a business lawyer. The attorney will aid in navigating the way through the specific laws and rules for dissolution. Further, the lawyer may advise the partners as to whether their partnership dissolution agreement is consistent with the relevant state laws.

Suing of dissolved partnerships

There have been questions as to whether a dissolved partnership can be dissolved. The preceding is following the signing of the partnership dissolution agreement and seizing of operations. The answer to the concern is that yes. Although a partnership has been dissolved, the partners can be sued both during and after the dissolution process in certain situations.

If the general partnership entered into contracts with other businesses and individuals, partners could be held liable even after dissolution. If the contracts do not include terms that absolve the partners of breach if the partnership is dissolved, then partnership or partners are liable. Hence, they could be sued even after completion of the process contained in the partnership dissolution agreement.

Types of partnership dissolution agreements

There are various types of agreements that govern business partnerships or limited liability companies. They also aid in the dissolution of business entities without the creation of extra spite among the partners. The types include:

  1. Agreement to dissolve

A dissolution agreement is a form of partnership dissolution agreement. If any of the partners loses interest but others have not, they can agree to buy the other partners’ shares.

  1. Buy-sell agreements

A buy-sell agreement is also a form of partnership dissolution agreement. It clearly outlines who can and cannot buy into the business. The preceding is on condition that the partners sell out, declare themselves bankrupt, or in case of disability or divorce. With a partnership dissolution agreement in the form of a buy-sell agreement, the remaining partners are safeguarded against the unwanted partners. It prevents the latter from buying into the business or divorced partners desiring and getting a section of the business.

  1. Novel dissolutions

In case a partner desire to mutually end a business venture a partnership dissolution agreement could aid if the partners agree on the dissolution. A partnership dissolution agreement specifies the obligations of every partner and established the timelines for the ending partnership. It also comprises the roles that all the partners play in the process. Further, entering into a partnership dissolution agreement does not end the partnership immediately. The partners are obliged to settle the partnership’s debts, end the partnership legally, and distribute the partnership’s assets.

  1. Dissolution statement

Once the partners settle on the terms of dissolution of the partnership and all the dissolution proceedings end, a statement of dissolution must be filed. The preceding step should be included in the partnership dissolution agreement. The guidelines for the completion of a dissolution statement, however, vary among various states. The partners may also be required to pay any pending taxes. Further, the IRS often has a checklist on the necessaries for dissolution of a partnership.

Cause and Effect

The decision to end a partnership is not easy since there are many steps involved in its dissolution. A partnership dissolution agreement has various stipulations on the procedure and conditions for dissolving a partnership. Once an entity is dissolved, the partners just don’t take the property and money. Rather, the assets of the partnership should be liquidated. Further, an effective partnership dissolution agreement provides that an accounting should be made and the proceeds should be used to settle the partnership’s debts. The preceding includes the debts owed to the partners. However, the external creditors should be prioritized with the owed partners sharing the remainder. In the event the partnership has inadequate funds to settle its liabilities and debts, the partners can use personal funds.

It has always been in the best interest of business owners to consult with attorneys that specialize in commercial law when dealing with dissolution. Predicting occasions can grant the owners great decision-making power and capability to proceed confidently.

Dissolution without a partnership dissolution agreement

Although a partnership could be established based on a promise or handshake, dissolution should be basically outlined in the initial partnership agreement. It should also be included in the partnership dissolution agreement. If there is no agreement or partnership dissolution agreement, the partners should follow the state laws on dissolution of partnerships. Hence the partners should understand the state laws, the bylaws, and the impact they have on dissolution. The preceding can be done with the aid of a qualified and competent business lawyer.

Significance of hiring an attorney to aid with a partnership dissolution agreement

Even the uncontested partnership dissolution has various moving parts. It is thus significant to ensure that all important steps to successfully complete the dissolution. Therefore, an attorney that is experiences could be quite helpful. The distribution of assets, closing of accounts, and settling of debts could result in conflicts. An experienced lawyer familiar with partnership dissolution agreements could aid in handling and mitigating any arising issues. The preceding is especially if the agreement was created during the formation of the partnership.



Do you need help?

At Legal writing experts, we would be happy to assist in preparing any legal document you need. We are international lawyers and attorneys with significant experience in legal drafting, Commercial-Corporate practice and consulting. In the last few years, we have successfully undertaken similar assignments for clients from different jurisdictions. If given this opportunity, we will be able to prepare the legal document within the shortest time possible.