Business partnerships are forged on shared ideas and goals, but that doesn’t mean that they are meant to – or can – last forever. An individual may join with the explicit understanding that they will have a finite tenure. They may decide to leave amicably, or they may be expelled based on a breach of contract, a disagreement, or even a judicial action. Whatever the circumstances, when they leave it is known as partnership dissociation, and it is important that it be managed with meticulous attention to the legal issues involved.

A partnership can consist of two or more people. In cases where there are just two, when one decides to leave it effectively ends the partnership and triggers all of the legal activities included in the partnership agreement. This usually means the payment of debts and the liquidation and distribution of assets. If there are more than two partners, the partnership does not need to be dissolved unless the remaining partners wish to do so. The departing partner will be provided their interest as per the terms of the existing agreement and will cease having any rights or responsibilities in how business is conducted going forward, though their obligations for any liabilities prior to the partnership disassociation will continue.  The remaining partners will make decisions regarding how to move forward.

Dissociation can be voluntary on the part of the disassociating partner. It can be built into the original partnership agreement with a date certain or at the point that the business achieves some stated goal.  It can also be a result of disagreements or adversity. A well-crafted partnership agreement will cite the various triggers for expulsion, as well as a process by which partnership dissociation is managed by the remaining partners. This may be a majority vote or may require unanimity. Partnership dissociation may also be the natural course of events following the death or disability of a partner, or of a bankruptcy.

If you are in the process of forming a partnership, it is important that you prepare for the possibility of partnership dissociation and make sure that your partnership agreement includes language regarding how it will be approached. If you are already in a partnership and need representation in managing a partnership dissociation, our experienced business attorneys can help. Contact us today for more information and to set up an agreement.