Dissolve an Agreement: Everything You Need to Know
Knowing how to dissolve an agreement is useful in the case that a contract or agreement needs to be terminated.3 min read
Knowing how to dissolve an agreement is useful in the case that a contract or agreement needs to be terminated.
The legal term dissolution is most commonly used when referring to the dissolution of a partnership. When an agreement is dissolved, either the parties agree or the court rules that the contract is no longer binding. When the agreement has been dissolved, both parties go back to their status from before the agreement.
Dissolution can also refer to a number of other legal actions, including:
- Dissolution of a corporation, which ends it status as a legal entity
- Dissolution in marriage, which ends a marriage through divorce
- Dissolution of a partnership, which happens when one partner stops being involved in the business but the business continues to operate with the other partners
- Dissolution of a contract, which ends the binding agreement between the parties
How to Dissolve an Agreement
Contracts or agreements happen every day. Anything from buying a house to accepting a job offer or signing up for internet service is done with a contract. A legally binding contract is a agreement to exchange products, services, or money between two or more parties. Breaking a contract early without a good reason can lead to the other party suing for breach of contract. However, contracts can be ended or dissolved early without legal repercussions as long as it is done properly.
One of the easiest ways to dissolve an agreement is if both parties consent to the dissolution. For example, if Tim hired a company to paint his house but unexpectedly moved before the painting started, both Tim and the painter could agree to dissolve the contract early without a penalty. They could either simply walk away from the contract without any consequences, or the painter and Tim could agree that Tim needs to pay the painter for the supplies he already purchased as a term for ending the contract early.
As long as people don't break the law, contract law generally allows parties to make and break contracts as they wish.
Legal Reasons for Dissolving an Agreement
A contract can legally be dissolved for a number of reasons, including:
- If it becomes impossible to perform. If you sign a contract with a specific bakery to bake your wedding cake and the bakery burns down before your wedding, it is impossible for the bakery to make your cake. In that situation, you can terminate the contract with the bakery based on impossibility.
- If one side doesn't perform their duties. If you sign a contract with a landscaping company to fertilize your yard once a week and they only do it once every three months, you can dissolve the contract. In order to have legal grounds for dissolution, the breach must be significant and material. If the fertilizer company comes every week but is one day late one week, that is not a significant enough breach to dissolve the contract.
Partnership Dissolution Agreement
If two or more partners are in business together and want to end the partnership, they need to create a partnership dissolution agreement. This document establishes a plan to inventory the partnership holdings, settle the debts, and assign any remaining assets to the remaining partners.
A partnership must be formally dissolved to assure that the partners aren't each liable for the overall debts of the partnership. Once the agreement has been dissolved, a partner can't bind any of the other partners into a business deal without their consent.
Some partnerships have partnership agreement documents that state how the partnership can be dissolved. A partnership dissolution agreement is especially important if the partnership doesn't have any other documents or terms and conditions already established of how to end the partnership.
The partnership dissolution agreement should establish a timeline and lay out the duties of each partner, as well as state how the assets will be divided. Creating a clear plan can help the dissolution process run much more smoothly and allows the partners to move on quickly from the relationship.
The partnership dissolution agreement also has many other names, including
- Cancellation of Articles of Partnership Organization
- Cancellation of General Partnership Agreement
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