Articles > Small Business

What is a Partnership Dissolution Agreement?

January 19, 2021   Alana HallidayPhilip Evangelou

A partnership dissolution agreement is a binding document existing between partners that specifies the terms and conditions surrounding the conclusion of a partnership. Terms and conditions range from the formal process of dissolving the partnership to asset allocation.

Partners usually create their dissolution agreements at the beginning of the partnership to ensure security and order. Partners can have completely agreements created or opt for dissolution clauses within their main partnership agreement.

What is a partnership?

Partnerships are when a group of two or more people run or own a business and share profits. A partnership can exist in the absence of a partnership agreement. Regardless of whether you have an existing agreement, a dissolution agreement is recommend.

Potential reasons for dissolution include the expiry of a partners term, illegality, death, bankruptcy, lack of capacity, breached terms, or a partner serving their intention to leave. Dissolution agreements are important and are recommended regardless of whether your partnership concludes on good terms.

What do partnership dissolution agreements cover? 

Partnership dissolution agreements generally cover the following:

  • How and when the partnership will end
  • How to conduct business until dissolution occurs
  • Valuation of partners assets
  • Purchase price
  • Plan for liquidation and asset allocation
  • Mutually released liability acknowledgment
  • Confidentiality
  • Warranties

Notably, every partnership dissolution agreement is unique as they all need to reflect the specific circumstances and parties interests.

Benefits of having a partnership dissolution agreement?

These agreements are advantageous in allowing partners to tailor terms and conditions to cater for their specific needs. In having a formal agreement, state and national default rules can be modified if they are undesirable. 

As partnership dissolution agreements are legally binding, parties must comply with agreed terms or potentially be liable for breaches under contract law. Other benefits are that terms such as asset allocation, confidentiality, and released liability conditions are expressed. Such clarification eases the dissolution process and assists in avoiding potential litigation in instances where disagreements arise.

If you would like to discuss further with one of OpenLegal’s commercial lawyers, feel free to reach out on 1300 997 337.

About Alana Halliday

Alana HallidayAlana works as an OpenLegal paralegal. She is currently in her penultimate year at UTS, studying a double degree in Business and Law. Alana is excited by Employment Law and Building, Construction and Infrastructure law.

About Philip Evangelou

phillipPhil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.