Don’t end your business partnership without a dissolution agreement

Don’t end your business partnership without a dissolution agreement

On Behalf of | Apr 13, 2021 | Business Law

For whatever reason, you and your partner have decided that it’s time to end your business partnership. You may be tempted to handle the dissolution informally to save time and money. Not so fast.  There are some serious benefits for you and your partner achieved through negotiation and execution of a formal dissolution agreement.

It can help to prevent future lawsuits

After your partnership ends, the last thing you want is a lawsuit on your hands. While there’s no guarantee that you won’t end up in court over issues that come up in the future, having a dissolution agreement can help to minimize the chances of that happening.

Even if your partnership is ending amicably, it’s still a good idea to have a dissolution agreement/plan in place that you can follow.  Then there are no doubts as to what is expected of each party.

Many post-dissolution lawsuits happen because the partners can’t agree on how to divide and distribute partnership property, or how to handle the remaining debt, not to mention liabilities that may not yet have even presented themselves. Having these things sorted out beforehand, memorialized in writing, can prevent your partner from later trying to claim more than what they’re entitled to or escape contribution for unforeseen future losses.

When detailing company property to divide up, don’t forget to include the client list. If you both intend to continue on with your own businesses, there could be potential conflict over which clients each partner gets to take with them. Sorting these things out beforehand can help to prevent litigation over it later.

It can make wrapping-up go more smoothly

When closing a business, the wrapping-up process is often the most complex part. It entails notifying clients, selling assets, paying company debts, distributing remaining funds equitably and more.

A dissolution agreement can clarify exactly when the wrapping-up process can begin, consider tax consequences and when the company will be considered officially dissolved. It can also assign which partner is responsible for which responsibilities; those tasks listed above, plus those required by state and federal statutes. This groundwork helps guarantee you aren’t overlooking anything and that there is no conflict over who must do what.

When both partners have attorneys participating in negotiation of a dissolution agreement, all involved receive additional assurance that they have accomplished the most equitable outcome possible.  Furthermore, all closure requirements can be addressed. Thus, minimizing the chance of a lawsuit down the road, along with inherent costs, impacts on your new business and the loss of friendships.