Partnership Deed of Dissolution: How do I draft a ‘termination’ clause?

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Table of Contents

• Where will the Partnership be terminated?
• Where does the property of partnership go once the partnership is terminated?
• What must be returned to the business upon termination of the partnership?
• Who should be signing what?

A Partnership Deed of Dissolution sets out the terms on which the partners of a partnership agree to dissolve the partnership. It is drafted on the basis that the partnership ceases to exist on, and from, the date specified in the deed and that the parties share equally all profits, losses, assets and liabilities of the partnership prior to and from the date of dissolution. To have a Partnership Deed of Dissolution drafted, it is very important to see a business lawyer to get advice on how best to proceed.

Where will the Partnership be terminated?

It is important that the Partnership Deed of Dissolution details the time and place for termination, in the event that the partnership, for some reason, comes to an end.

Where does the property of partnership go once the partnership is terminated?

Upon termination of the partnership, the partnership property is to be applied in accordance with section 45 of the Partnerships Act 1892 (NSW). Under this regime, each partner will be entitled:

• To have the property of the partnership applied in payment of the debts and liabilities of the Business; and
• To have the surplus assets after such payment applied in payment of what may be due to the partners respectively, after deducting what may be due from them as partners to the business.

The above simply means that the partners will be entitled to an equal share of the company assets after all debts owing to the business itself have been paid. Have a business lawyer assist with the drafting of this clause, as it can be quite wordy!

What must be returned to the business upon termination of the partnership?

Pursuant to the Partnerships Act and upon termination of the agreement, the departing partner will be required to return to the business anything that relates to the business, such as:

• Any domain name login and any account information for the website (if the business has one);
• Any other document that will be reasonably necessary to give full effect to the Agreement;
• Any documents, files, books and records of the business Partnership in the possession of the departing partner, including without limitation:

o   Originals, copies, version, notes and backups, including stored in hardcopy or electronic format. (It is also a good idea to have your business lawyer include in this provision any external servers or USBs that may have been used by the departing partner – this way you are covering all bases); and

o   Originals, copies, backups, versions and notes pertaining to the Business’ intellectual property or confidential information.

Who should be signing what?

In the event of a termination, the Agreement should require the departing partner to do all things and sign all documents necessary to assign his or her remaining title and interest associated with the Business

Depending on the number of partners, it will also be necessary for your business lawyer to draft a provision that forces the remaining partners to sign a release of liability to the departing partner, which will essentially give effect to the termination

Conclusion

If a partnership is dissolved, it is highly advisable that the process of termination be documented in a clear and concise manner. If you don’t document the dissolution correctly by using a Partnership Deed of Dissolution, disputes can, and will, arise. Speak with a business lawyer about drafting this Agreement – it could save you time and money down the track.