Why should you have a formal partnership dissolution agreement?

By | May 13, 2008

If you have a business partnership with one or more persons and someone wants to leave the partnership, a formal agreement is truly necessary to protect everyone involved. The technical term for this type of agreement is a dissolution, which is the change in the relationship of the partners caused by any partner ceasing to be associated with the business, and distinguishes it from the dissolution of the business itself.

Any time a partner leaves a business, the partnership is, in essence, dissolved. However, the remaining partner or partners may carry on business as usual after the agreement is signed. The partnership dissolution agreement should set forth terms under which the partner is leaving. It should state any property of the business which the partner is taking with him, the rights of the business to retain present customers, any monetary terms agreed upon, the right to the name of the business, and any other important key points which would allow the business to continue. It should be noted that no one can be forced to remain as a partner in the business against his or her own wishes and has the power to withdraw at any time if there is an agreement. If no agreement can be reached, the partner may not have the right to withdraw until a formal partnership dissolution agreement can be redesigned to everyone’s satisfaction. Therefore, utilizing a dissolution agreement form is the best choice, so that all important areas are covered and no legal issues arise down the road.

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