Liquidation Agreement Template

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A liquidation agreement is a contract negotiated as part of a settlement between two or more business partners, usually when dissolving a business. It explains the liquidation process and what debts the converted assets will cover. Fill out this Lawrina template online, download it in PDF, and print it to submit where necessary.

Template Description

Paper titled "Liquidation Agreement"; woman bringing folders to the desk

Liquidation examples refer to the process of businesses closing down and converting all remaining assets into cash. Businesses go into liquidation for several reasons, usually when a company is in debt and cannot pay outstanding obligations. This is known as insolvency. Although rare, solvent companies can also enter into liquidation voluntarily.  

Regardless of the reason, organizations must define the liquidation process and appoint a liquidating partner to go through the necessary legal steps. This is done in a liquidation agreement. Here, you will find a downloadable liquidating agreement template and step-by-step instructions for completing the template quickly and easily.

What Is a Liquidation Agreement?

A liquidation agreement, also known as a partnership termination agreement, is a contract negotiated as part of a settlement between two or more business partners, usually when dissolving a business. This document details the liquidation process and what debts the converted assets will cover.

Insight

Liquidating agreement templates may cover three basic elements

  1. The imposition of liability upon the general contractor for the subcontractor’s increased costs, thereby providing the general contractor with a ground for legal action against the owner; 
  2. A liquidation of liability in the amount of the general contractor’s recovery against the owner; and
  3. A provision that provides for the “pass-through” of that recovery to the subcontractor.

Parties of the Liquidation Agreement

A liquidation agreement concerns two or more business partners who have agreed to dissolve their business. As such, the document will be signed by two or more parties, all of which being the business partners.

Key Terms

When two or more business partners want to end their joint venture, they initiate the process by signing a liquidation agreement. An agreement template can be filled out, downloaded as a PDF, and signed as is or modified to add terms that are unique to the business. Though one agreement may differ from the rest, the liquidation form format includes the following key terms:

  • Joint venture or partnership — The joint venture or partnership that is being liquidated needs to be clearly defined in the agreement.
  • Inventory — A major component of the liquidation process is counting all the assets and liabilities of the business. All inventory should be accounted for and included in the liquidation agreement.
  • Liquidation process — The parties will need to agree on the method of liquidation for all remaining assets.
  • Liquidating partner — One partner should be appointed to carry out all the liquidation activities.
  • Prior agreements — Provided that the parties had a liquidation clause in their initial contract, a liquidation agreement will override it. 

What Should Be Included in a Liquidation Agreement?

A comprehensive liquidation agreement sample will include all required sections of the contract, ensuring that it will be legally binding. The information that the parties will need to input before downloading and printing the PDF form includes:

  • Partnership description: The first section of the liquidation form template is for the information about the joint venture. Include the names of both businesses or all partners and define the partnership, which is especially crucial if the parties are involved in several agreements. Also include the end date of the partnership agreement.
  • Statement of dissolution: This section of the liquidating agreement template defines the dissolution process. The standard process requires the parties to file a dissolution with the Department of Treasury and the county clerk’s office for every county in which the business routinely operates. The statement also explains the process for releasing the news to the public.
  • Liquidation information: Include detailed information on the business liquidation, including the process for appointing an accountant and a liquidation partner. This section of the liquidation contract will also describe how the proceeds will be used to pay off any outstanding debt from the partnership.
  • Governing laws: This section on the form outlines under what laws the liquidation agreement shall be governed. This depends on the jurisdiction in which the other legal proceedings for dissolving the partnership are being conducted. Regulations vary by state, but it is important to file documents for all proceedings with the same court.
  • Party information: The final section of the form contains the names, addresses, and contact information for all parties involved in the liquidation agreement. The parties must sign and date the agreement to make it a legally binding contract. The liquidation process will commence after signing.

How To Write a Liquidation Contract

Writing a blank liquidation agreement might seem daunting, especially when dealing with other aspects of dissolving a business. If you’re struggling to know where to start, our liquidation form template can be used to keep things simple. Below is a step-by-step guide for using a printable liquidation agreement sample to create a legal contract.

For Business Partners

  1. Mention all the relevant details. Using a liquidation contract template, mention each party that is entering into the agreement by name. Write all the relevant details of the joint venture or partnership that is ending. That is especially important if there are more partnerships between the parties in existence. Also specify the closing date.

  2. Detail the liquidation process. Begin by choosing the method for taking inventory and selecting a liquidation partner who will be in charge of the process. There should be a specific process for the upcoming liquidation, including how the remaining assets will be liquidated, etc. Similarly, the agreement should specify how the parties will distribute any remaining debt among themselves. 

  3. Check compliance with state law. The laws of your state may differ from those of others. Therefore, research your state laws and make sure that the agreement you have drafted is legally binding.

When Should a Liquidation Contract Be Used?

A liquidation agreement template can be used when dissolving any business. Business partners can voluntarily dissolve a company. Partners may be forced into dissolution due to failure to file or pay annual taxes or other issues. Dissolution of business partnerships can also arise due to bankruptcy.

Regardless of the reason for terminating the business, it is essential to define the terms of liquidation. These dictate who will be appointed as the liquidating partner and outline the entire liquidation process. Any proceeds from liquidated assets are typically used to resolve outstanding business debts.

Insight

Sometimes, the original business partnership contract stipulates liquidation terms. In that case, a liquidation agreement is unnecessary — the rights and responsibilities are already made clear. However, the parties will need to complete a contract liquidation form if these terms were not included in the original contract.

Common Use Cases

A liquidation agreement template may be needed in the following cases:

  • Partners have decided to end a joint venture;
  • One partner has decided to exit a joint venture.
Warning

It is important to note that a liquidation contract doesn’t formally terminate a joint venture or business partnership, nor does it remove the company from the business register. Rather, it is part of the settlement process for the business. It ensures that, after the sale and purchase of remaining assets, things are settled fairly between the parties to help avoid disputes. Debts are then paid off, and the business can officially close its doors.

When Not To Use a Liquidation Contract

A liquidation agreement template is not always appropriate, such as in the following case only:

If a clause about liquidation was included in the original contract and no business partner wants to dispute it.

State Law

Check the laws in your state to make sure the contract will be enforceable. As the law may vary from state to state, the language used is a crucial part of the agreement. Consider the following chapters of the 2020 US Code:

  • Title 11 Bankruptcy 

  • Chapter 7 Liquidation

  • Chapter 11 Reorganization

Small business owners prefer Chapter 11 to Chapter 7, specifically to avoid asset liquidation. While Chapter 7 filings normally stipulate a complete shutdown of the business and a selloff of all assets in order to repay the debt, the purpose of Chapter 11 is to maintain business operations and repay the debt over time. 

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