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Partnership dissolution agreement

This Agreement is entered by and between Jonas Adam, individually or collectively as the "Signee" and Jane Smith, as the "Signer", together referred to as the "Parties".
The Contract is dated [the date both parties sign].

1. Agreement terms

The Parties agree that the following agreement is dependent on the terms presented as follow:

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Partnership dissolution agreement

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What is a partnership dissolution agreement?

A partnership dissolution agreement is a formal legal agreement that outlines the terms of concluding a partnership, such as a joint business.


Why should I use a partnership dissolution agreement?

The agreement is the easiest and cleanest way to end a partnership and set clear expectations about the future. You likely created an agreement to begin the partnership, which outlined ownership, compensation, responsibilities, etc. That agreement was likely very helpful in avoiding common pitfalls of working together with someone else. Well, just like you had that agreement when you started the business, so should you have an agreement to end the business. The agreement should make it clear what the responsibilities and liabilities are, and how the business’s assets are split.


When should I use a partnership dissolution agreement?

Any time you and a partner or partners are officially ceasing a business or other venture, it’s recommended that you use a partnership dissolution agreement. You don’t need to make the agreement overly complex and it doesn’t need to be costly to create, but having one in place will save you from lots of potential issues that could appear down the road.


Whether or not you have an original partnership agreement or if the original partnership agreement didn't provide a framework or terms for ending the partnership, yes especially good to have a partnership dissolution agreement. Even if you did have an original partnership agreement and it did have a framework for dissolving the partnership, it's still worth having a separate partnership dissolution agreement to make the terms of the partnership completely explicit. As with all contracts, this one is valuable in that it makes very explicit what will happen in different scenarios. 


Whenever you're dealing with one or more people, especially as it relates to legal matters like this, it's best to have an explicit written outline in the form of a legally binding agreement on what you and they will do and what the expectations are. This will help quickly resolve many issues, especially resolving them before they arise in many cases.


What does a partnership dissolution agreement need to contain?

There are several important clauses that your partnership dissolution agreement should contain. However, keep in mind that as with all legal agreements, each state in the United States has different laws and considerations. So be sure to keep in mind the local laws as you craft your partnership dissolution agreement. It may be worthwhile to consult a lawyer if the partnership is complex, and especially yes the partnership is between two or more people who have done business in different states. Anytime multiple states are involved in a partnership or any other commercial activity the issue becomes more complicated as the laws of each state need to be taken into account.


So what exactly does a partnership dissolution agreement need to contain? The first is exactly who the partners are and what their contact information is. Keep in mind that these partners could be individuals or corporations.


The next piece of information you need is who the liquidating partners are. It can be the case that the entire partnership is liquidating, or just that one of several partners are leaving. Knowing how much of the partnership is being dissolved will help define the structure and the contents of the dissolution agreement.


And the last critical piece is whether there is a records custodian for the agreement. Not all partner dissolution agreement have a records custodian, but if you are appointing one, make sure you have their information and their deadlines ready also.


One of the most important parts of a partnership dissolution agreement is the allocation of liabilities and debts. Partnerships are often commercial activities, which means they were involved in the movement of money, and so the partnership if it was a business will likely have liabilities or debts, not to mention assets. It can be important to be clear who is responsible for those assets, liabilities, and debts. Keep in mind that those each don't have to go to a single person but can be split evenly amongst the partners or have some other split.


Another consideration is the tax obligations. Often times just because you're dissolving the partnership that was involved in commercial activity, it doesn't mean that you’re not responsible for state or federal or some other taxes on that legal entity. So don't be surprised if you get a tax bill some months or years later dissolve. Once that happens it will be helpful to have it in writing how the tax obligations fall to the various partners in the partnership.


Another very common consideration in partnership dissolution agreements is release and indemnification. Because the partners are dissolving the partnership, it often means they want to walk away from it, and they don't want any lingering potential legal issues arising from it. The release and indemnification means that neither partner will have serious issues from the partnership or from the other partner or partners hanging over their heads once they have dissolved the partnership.


And very importantly, the partnership dissolution agreement should make explicit the jurisdiction that it was created and applies in. As mentioned above especially if you are doing business across state lines, it's important to be clear what the jurisdiction of the partnership agreement and as important the jurisdiction of the partnership dissolution agreement.


What are other names for a partnership dissolution agreement?

Although that’s the most common name for it, it can also be known as a “Cancellation of Partnership Agreement”, “Termination of Partnership”. It’s also important to note that while this agreement can be and often is a standalone agreement, it can also be part of a larger agreement or set of agreements relating to the end of the business partnership.