Dissolution of a partnership deed is a document whereby business partners decide to terminate a partnership. It sets out the terms under which the partners agree to dissolve and wind up the partnership, and outlines each step of the dissolution process. In this article, partnership agreement dissolution, we take a look at the mechanism and options open to you.
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How Is A Partnership Dissolved?
There are a number of ways to dissolve a partnership agreement and these can include:
- By mutual consent
Most partnership agreements include terms and processes for dissolving the partnership. The partners must adhere to the terms of the agreement. Often, the partnership agreement has a stipulation requiring less than a 100 percent vote to dissolve the partnership. If there isn’t such a condition, then all partners must agree to dissolve the partnership at the same time, unanimously. This means that if partners previously agreed but later change their minds, the relationship cannot be terminated by consent.
- Notice of dissolution
Any partner can dissolve the partnership “by notice” if it is an “at will” partnership. However, it only takes a small amount of effort for a partnership to become “at will.” The necessary legislation is complicated. The following are some examples of how to make sure your partnership isn’t “at-will”:
- If one of the partners leaves, any evidence that the surviving partners wish to continue the partnership;
- A cooperation agreement in writing;
- The partnership is a Limited Liability Partnership (LLP);
It is worth noting that, the concept of termination “at will” does not exist with companies. Instead, shareholders vote to wind up the business.
- By expiration
If the partnership was formed for a specific project or for a set length of time, it is dissolved when the time comes. The concept of expiration does not exist for limited companies. The shareholders vote to have the register of members struck out by Companies House. LLPs follow a similar procedure.
- Death or insolvency
Unless otherwise specified, partnerships dissolve immediately if one of the partners dies or becomes bankrupt. As a result, partnerships should have a documented partnership agreement with provisions that allow for the continuation of the partnership. The Partnership Act is complicated if there isn’t a documented partnership agreement and the remaining partners want the partnership to continue. If the company is a limited liability company (LLC) or a limited liability partnership (LLP), the death or bankruptcy of one of the members does not immediately terminate the company.
- By Court Order
Dissolution by the court is likely to be contentious, otherwise the partnership would dissolve by agreement. The court can dissolve a partnership on several grounds, including that dissolution is just and equitable, because for example:
- The partnership comprises only 2 partners, who have fallen out;
- The business can only be carried on at a loss;
- A partner is incapable of carrying on the business, guilty of conduct that detrimentally affects the carrying on of the business, is willfully or persistently in breach of the partnership agreement or behaves in such a way that it is not reasonably practical for the other partners to be in business with him.
What should be included in partnership dissolution agreement
There are many issues to resolve. Thus there is scope for negotiation, and solutions that deliver greater value than going to court.
If a partnership is insolvent, then an insolvency practitioner must be appointed. The final dissolution agreement usually covers:
- Liability for any debts;
- Which partner(s) take over the business name, existing clients, work in progress;
- Intellectual property: if valuable, establish intellectual property ownership to avoid subsequent infringement claims;
- Broken contracts;
- Partners may be personally liable if business contracts are broken;
- Distribute assets, e.g stock, customer lists and contact details;
- Final partnership accounts, including final tax payments, which are often complex, management of the partnership’s records.
- Compliance with statutory and professional obligations;
- Continuing professional indemnity insurance e.g. run-off insurance.
How we can help
We have a proven track-record of dealing with Partnership Agreement dissolution. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
How to Contact Our Corporate Solicitors
It is important for you to be well informed about the issues and possible implications of dissolving a Partnership Agreement. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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