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The difference between dissolving and terminating a partnership

On Behalf of | Nov 12, 2021 | Partnership Agreements And Disputes |

Everything is big in Texas, as the saying goes, but that doesn’t mean the Longhorn State doesn’t support small businesses. There are plenty of small LLCs and partnerships in Texas, and these relationships can come to an end. Timing and other factors determine the condition or dissolution of the termination.

For instance, if a partner dies, that generally triggers a dissolution. If there are only two partners and one withdraws from the company, then the partnership is terminated. However, there are legal matters to resolve before the termination is completed. If one partner withdraws but at least 2 partners remain, the partnership may be modified and continue if all parties agree.

Does the partnership end at dissolution?

The partnership ends before the dissolution and is final at complete termination. According to business law, assets must be liquidated and allocated, along with other legalities. The process of dissolving a partnership can be resolved by agreement between the partners, but if not, it may be settled in court with papers signed by a judge. Partners may decide to continue in the same business but as separate entities, so each must know what parameters they can operate in going forward.

In a dissolution of a partnership, it’s not uncommon for one partner or to buy out the other and acquire full ownership rights to the business. The partnership will then become a sole proprietorship (unless more than one partner remains).

Agreements should be reviewed by both parties

Due to the complex nature of business law, reviewing partnership agreements can be challenging. However, taking the time to do so will ensure that the dissolution and termination requirements are correctly completed. Further, the partnership agreement may have in it (or can be modified to include) provisions for an orderly transition in the event of dissolution, saving all partners time and money.

Any amendments to the agreement could potentially affect how one partner fairs over the other. Inequitable dissolution can result in conflict and court battles, so a peaceful resolution is an optimal outcome.