No Partnership Dissolution Agreement is Risky Business

Consider the following: You go into business with a partner 50:50, work really hard and build your business. After five years, you find yourself unable to get your company to the next level because your partner does not want to grow any further or refuses to invest in a growth plan. When you formed the partnership, your lawyer did not include a Buy-0ut provision or a Partnership Dissolution Agreement. In the event of a deadlock. What can you do? Unfortunately, all too many clients start their business with partners who change over time or who become difficult to work with. If you do not have a provision in a company agreement, you have limited options: (1) come to some agreement with a partner; or (2) dissolve the corporation and divide the assets and risk destruction of the company for both partners. A good partnership agreement frequently prevents such disputes from developing through a simple buy out provision.

Dissolution is defined as the change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the partnership. A Partnership Dissolution Agreement defines both the winding up of the business of the partnership and its termination. Generally, when a partnership dissolves, the partnership continues during the period of winding up until all pre-existing matters are concluded.

A good partnership agreement should be drawn up by each partner’s attorney, rather than by one attorney. Just like a good prenuptial agreement, it allows the partners to understand their commitments and responsibilities. And, if it doesn’t work out, to know the consequences. If you don’t have the money to retain an attorney, then there are many places to get free forms, including the Small Business Administration: Model Partnership Agreement.

At Cochell Law Firm, we’ve litigated partnership dissolutions. Many could have been avoided if taking the initiative to create a Partnership Dissolution Agreement.

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