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The content of an offer upon dissolution of a partnership

Updated: Aug 9, 2023

It can be agreed in the partnership agreement that the exiting partner offers his contribution to the remaining partner or partners. However, the content of this offer is not governed by law and will have to be filled in yourself. But what if the offer is too high, or if you are asked to pay goodwill? What should an offer look like and what if you do not want to accept the offer? After reading this blog, these questions will have been answered.


What is goodwill?


There is no uniform definition of goodwill. The Supreme Court has defined goodwill as the earning capacity of a business, insofar as it is in excess of the sum of a normal return on the assets invested in it and the normal remuneration of the entrepreneur's labor, which earning capacity is reflected in a certain surplus value that the constituent parts of the business, taken together, possess over and above the value of the constituent parts, each taken in isolation. Quite a mouthful. Goodwill is therefore not always easy to calculate. Goodwill exists when the value of a business exceeds its current value on the balance sheet. This may be due, for example, to a distinctive product, a strong brand name, a large customer base or expertise.


Goodwill can be paid when a business is acquired, for example, but can also be paid when a partnership is formed. Here one partner pays an amount for the use of the goodwill of the other partner, but also for the time and effort it has cost to build up the goodwill. For this, it is important that clear agreements are made. After all, goodwill can amount to a lot of money.


Offer obligation in case of a partnership consisting of two persons


A partnership is an agreement by which two or more persons undertake to bring something into the partnership for the purpose of sharing the resulting benefit with each other. The partnership may be dissolved in several ways, one of which is through the resignation of one of the partners. If the partnership consists of two partners, despite a continuation clause, resignation of one of the partners will dissolve the partnership. After all, a partnership must consist of at least two persons. A partnership contract may provide that the resigning partner must offer his/her share in the partnership to the remaining partner (who will then continue as a sole proprietorship). It is obvious that such an offer must conform to reasonableness and fairness. After all, the purpose of an obligation to offer in the partnership agreement is that an offer can and will actually be accepted. By making an exorbitant offer, such a contractual clause can easily be circumvented, and this would make the clause unnecessary altogether.


The fact that an offer must be made says nothing about the content of the offer. What the offer should look like can be determined by the Dutch "Haviltex-maatstaf", but even better is agreeing what such an offer should look like. In short, the Haviltex-maatstaf means that the content of agreements between the parties must be judged on the basis of the intention they ascribed to them and not the literal wording in the contract. Interpretation according to the Haviltex-maatstaf can therefore lead to (unnecessary and lengthy) discussions. Especially when the resigning partner requests goodwill in his offer. If the contractual clause does not include the payment of goodwill, this can create false assumptions and will not benefit the partnership, however short it may be. Clauses in which it is stipulated that the offer is made according to social standards can cause discussions to flare up even more, since asking for goodwill is more common in one sector than another and within the same sector it can also happen that goodwill is viewed differently. Therefore, interpretation according to the Haviltex-maatstaf is not a good idea.


Non-acceptance of the offer


If the resigning partner's offer is not accepted, the assets of the partnership will be liquidated. The offer may not be made to a third party, because when entering into a partnership the central aspect is the partnership between two persons. The person with whom a partnership is entered into is therefore of essential importance.


Liquidation implies that the assets will be divided so that each gets what he or she is entitled to. If a property, which belongs equally or unequally to the partners must be liquidated, it may have to be sold and the remaining partner, if he or she wanted to continue in this property, would have to buy it on the market as a competitor. The whole purpose of the contractual clause is precisely that the remaining partner can continue with the partnership. This would be jeopardized if the offer cannot or will not be accepted.


The contractual clause in the case of a partnership consisting of three or more persons


A partnership is dissolved by the resignation of one of the partners. However, this can be avoided by including a continuation clause, whereby the partnership is continued with the remaining partners and in which the assets contributed by the resigning partner are offered to the remaining partners. This is only possible when the partnership consists of more than two persons, and when at least two persons remain. Indeed, the partnership can only continue to exist if two or more partners remain. In the case of dissolution and liquidation, the same applies as in the case of not accepting a partnership of which only one partner remains. There is a danger of threatening the continuation by distributing the assets accumulated for the corporate purpose and withdrawing them from the profession or business.


Conclusion


It is advisable to properly regulate the content of the offering and any goodwill to be paid, preferably already at the formation of the partnership. The content of the offer will otherwise be determined via the Haviltex-maatstaf and this can cause unpleasant discussions. It is advisable to clearly include paying for goodwill in the agreement. After all, this is not regulated by law. An offer does not have to be accepted, but if this results in liquidation of the partnership, it may result in the company not being able to be continued by the remaining partner or partners.


Want to know more?


If you wish to draw up a partnership agreement, we will be happy to assist you. You can also always contact us for advice if the above situations arise. Do you have questions about offering obligations, entering into or dissolving a partnership or corporate law in general? Feel free to contact one of our lawyers.

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