Partnership dissolutions can be a stressful time no matter the circumstance, so anything that simplifies the process is a worthwhile endeavour. Disputes over the values of goodwill and asset values can be the most significant roadblocks in a dissolution; however fortunately, they are avoidable.
What Is A Partnership Dissolution?
In relation to business partnerships, a dissolution is the process of one party legally exiting the relationship. The partnership is only officially deemed terminated once the business’s debts have been repaid and remaining assets have been distributed.
What Causes A Dissolution?
Partnerships dissolutions can be voluntary or a legal requirement, for reasons such as:
- A partner wishes to exit for personal reasons (for example, losing interest in the industry or wanting to retire)
- The partnership agreement was for a fixed term which has expired
- The business becomes insolvent or bankrupt
- A court order is issued to legally end the business
- A partner falls ill, becomes disabled or dies
How Can A Valuation Help?
When one party decides to leave a partnership, it can raise feelings of frustration, anger and sadness. Due to their contributions to the business, the party exiting may feel a sense of entitlement to a significant portion of the assets for their future or retirement. However, the remaining party may also feel deserving of the larger share due to a feeling of abandonment, resentment and the pressure of maintaining the business alone.
It is strongly recommended that a detailed partnership agreement, that considers situations such as dissolution, is formulated at the beginning of the business’s life. This helps to establish an understanding of how the assets will be divided in the event of dissolution, otherwise this will be entirely determined by the governing law of the state in which the partnership was formed.
Even with a partnership agreement, professional valuations can greatly simplify the process. An independent valuer is an impartial third party; meaning they can provide a current and accurate valuation that is fair to both parties. Furthermore, formal valuations are a strong supporting document in court and act as an even playing field to begin negotiations.
Our friendly teams at Hymans have almost 40 years of industry experience and a wealth of knowledge that delivers exceptional results for our clients. Our thorough, compliant, and customisable reports can assist in bringing to resolution any legal dispute.
It is strongly recommended that a detailed partnership agreement, that considers situations such as dissolution, is formulated at the beginning of the business’s life.
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