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What is a Continuation Agreement and Why It Matters in Law
Definition & Meaning
A continuation agreement is a legal document used in partnership law. It outlines the terms under which a partnership can continue its operations even if one partner leaves, dies, or is expelled. This agreement helps avoid the need for liquidation, allowing the remaining partners to maintain the business without interruption. While these agreements often include provisions for buying out the departing partner's interest, such provisions are not mandatory.
Table of content
Legal Use & context
Continuation agreements are primarily used in partnership law. They are important for businesses that want to ensure stability and continuity in operations despite changes in partnership. These agreements can be particularly relevant in various legal contexts, such as:
Business law
Contract law
Users can manage their partnership agreements using templates available through services like US Legal Forms, which provide professionally drafted legal documents that can be customized to fit specific needs.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Here are a couple of hypothetical examples of continuation agreements:
Example 1: A partnership of three individuals operates a law firm. They create a continuation agreement stating that if one partner passes away, the remaining partners can continue the business and have the option to buy the deceased partner's share from their estate.
Example 2: A small restaurant partnership includes a clause in their continuation agreement that allows the remaining partners to buy out a partner who decides to leave the business voluntarily.
State-by-state differences
Examples of state differences (not exhaustive):
State
Key Differences
California
Requires specific provisions for buyouts in continuation agreements.
New York
Allows for continuation agreements but has specific statutory requirements for dissolution.
Texas
Partnership laws emphasize the need for written agreements to enforce continuation terms.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Common misunderstandings
What to do if this term applies to you
If you are part of a partnership and want to create a continuation agreement, consider the following steps:
Discuss the terms with your partners to ensure everyone is in agreement.
Draft the continuation agreement, including any necessary buyout provisions.
Consult legal templates available through US Legal Forms for guidance.
If your situation is complex, seek advice from a legal professional.
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