What is a Dissolution Agreement?

Amanda R. Bell

A dissolution agreement is a document that formally ends a business partnership. It not only terminates both parties’ commitments to the other partner but to the business as a whole. It also serves as a way for both parties to avoid future misunderstandings and, in many cases, future lawsuits or claims against either party.

Dissolution agreements are typically signed in the presence of a notary public.
Dissolution agreements are typically signed in the presence of a notary public.

Dissolution agreements typically follow a change in either the business itself or the individual goals of the partners. It also can occur following the meeting of the partnership’s objectives, in which case the partnership is no longer needed. No matter the reason for the dissolution, the document itself provides all parties involved with a clean break from each other and legally absolves either or both of the parties from any remaining obligations to the other person or to the business itself.

Each dissolution agreement can be altered for the specific needs of a business.
Each dissolution agreement can be altered for the specific needs of a business.

A standard dissolution agreement contains several sections of information, though this can be altered to fit the unique needs of the business. The document typically begins with an introduction of the persons in question, followed by a brief outline of the history of the partnership, any money involved in the business and a subsection that defines the language used in the rest of the document. The next section of the document spells out the location of the business, including the state it is in, its address and its name.

Next is a section known as “winding up.” This provides the specific details of the dissolution, including which partners will gain certain assets and responsibilities. This section is considered one of the most important portions of the dissolution agreement in the long term. The most important section for the short term is what comes after the "winding up."

The next area determines what each partner is responsible for concerning the dissolution. This can be anything from who terminates any leases to who publishes the public notice of the dissolution. It is important that this area is thorough and agreed to by all parties to avoid any issues with the official dissolution of the partnership.

The next two sections divide liabilities and release both parties from any future claims against them concerning any partnership-related issues. In most cases, however, the parties are allowed to sue each other if any of the obligations agreed to in the dissolution are not met. The final area of the agreement can include any amendments, can specify the state laws that will be used to interpret the document and can include a section known as the “no implied waiver” statement. This specifies that if either party allows the other to break an obligation stated in the agreement, that does not mean the party is waiving its right to require that obligation to be met in the future.

After the document is completed and all concerned partners sign it in front of a witness or notary, each partner is supplied with a copy of the agreement for his or her records. A dissolution agreement can be simple and drafted by the persons involved. A complicated dissolution agreement, however, should be drafted by a professional to avoid any loopholes or issues with the document in the future.

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