PARTNERSHIP

The Advantages of a Dissolution of Partnership Agreement

By Timothy James, J.D.

March 30, 2020

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General Partnership Laws & Regulations

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A general partnership is an entity allowing two or more persons to jointly conduct business for profit. The laws of each state authorize partnerships and, together with the written agreement between the parties, govern their terms. Partnership laws vary, but most states derive their partnership laws from the Uniform Partnership Act. A dissolution agreement can afford partners many important advantages if done properly and under the right set of circumstances.

Dissolving a Partnership

Partners who no longer wish to do business can create a dissolution of partnership agreement. A dissolution of partnership agreement details the terms under which the partnership will terminate. Often, it is written only after lengthy negotiations, sometimes with attorneys present. Though generally recommended, partners need not wind up their affairs using a dissolution agreement since having a dissolution agreement is optional rather than mandatory.

Read More: Dissolving Limited Partnerships

Avoiding Default State Laws

State laws typically provide default procedures for dissolving a partnership. When partners wind up their affairs using a dissolution agreement, they can set their own terms rather than rely on default statutory terms provided by their state. This allows partners to create terms that better fit their particular situation than a state's default rules.

Assigning Outstanding Debts

A written dissolution of partnership agreement allows partners to address any debts that might survive the partnership, agree on the distribution of remaining assets and address any other remaining issues. The agreement can also later serve as evidence that a partner agreed to retire a particular partnership obligation as well as award a partner the right to claim a particular asset, including the right to continue to do business under the auspices of the former partnership.

Enforcing Rights in Court

Because it is a legally enforceable contract, partners can enforce the terms of a written dissolution of partnership agreement in court. This is the main advantage of having a dissolution agreement: Furthermore, a clearly worded dissolution agreement can help avoid misunderstandings. However, if misunderstandings occur, partners may enforce their rights through litigation, filing suit in the proper court within the state where the partnership was created.

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