Dissolution of Partnership Conditions in Saudi Arabia

Partnership dissolution conditions are not merely a phrase typed into a search engine; they are often a decisive turning point between one partner trying to save what remains of the business and another relying on delay and the exhaustion of time. When decisions stall, accounts become entangled, and doubts grow, the real question becomes: how can you dissolve the partnership in a lawful manner that protects your rights and prevents you from being burdened with liabilities you did not cause? In this article, we set out the legal framework for partnership dissolution in Saudi Arabia—when it can be done by mutual agreement, when it escalates into a court dispute, what must be proven, and the consequences for shares, debts, and liquidation—so you can exit the relationship with minimal losses and the strongest possible legal position.

First, let us introduce our firm: Mohammed Al-Muzayen Law Firm, with more than 15 years of experience in handling partner disputes and corporate matters. Our work covers family partnerships and partnerships between friends, as well as domestic and cross-border disputes—many of which have ended before courts or through arbitration, while others were resolved through disciplined negotiation when settlement opportunities were realistic. As lawyers and commercial arbitrators, we understand that goodwill language alone is not always enough; some disputes require firm legal intervention to place each party before their rights and obligations under Saudi law, or under the applicable substantive law if the relationship is outside the Kingdom and subject to commercial arbitration, and to prevent continued delay or harm to the business. This article is designed to provide a practical understanding of partnership dissolution conditions and to outline the work agenda you should establish with your lawyer, helping you end the partnership with the least possible loss and achieve the most secure legal outcome available.

For inquiries or urgent intervention—including filing an urgent court application when needed—you may contact us directly at: 0590098800.

About Mohammed Al-Muzayen Law Firm & Arbitration

Mohammed Al-Muzayen Law Firm was established by lawyer and commercial arbitrator Mohammed Al-Muzayen, a primary member of the Saudi Bar Association and a member of the Chartered Institute of Arbitrators (CIArb), with more than fifteen years of professional legal experience. The firm specializes in construction and contracting disputes, engineering and project-related claims, government contracts, and franchise agreements, in addition to providing corporate legal advisory services across various sectors. Mr. Mohammed Al-Muzayen holds a Bachelor of Laws (LL.B.) degree from King Saud University in Riyadh, awarded in 2009.

Analyzing Breaches and Linking Them to the Partnership Agreement

When dealing with a partnership dispute, the starting point must always be documented legal reality rather than impressions or assumptions. The existence of a disagreement does not automatically mean that a breach has occurred that justifies partnership dissolution conditions. Accordingly, the process begins with a precise analysis of the alleged breach and a direct comparison with the provisions of the partnership agreement and the relevant statutory obligations. The facts are broken down one by one, such as unilateral actions, failure to perform obligations, commingling of accounts, exceeding granted authorities, or obstruction of management. The fundamental question is then raised: does this conduct constitute an explicit violation of a contractual provision or a material obligation, and is there sufficient evidence to support it? The purpose of this analysis is not to accumulate accusations, but to build a solid legal foundation that distinguishes what can be relied upon legally from what remains a managerial or commercial disagreement that does not, in itself, constitute a legitimate ground for terminating the partnership.

The Impact of Breaches on Partnership Continuity and Partners’ Rights

Once a breach has been established and linked to the relevant contractual provisions, the analysis moves to assessing its practical and legal impact on the continuation of the partnership. Partnership dissolution conditions are not determined by the mere existence of a violation, but by its consequences and effects. At this stage, the assessment focuses on whether the breach has caused direct financial harm, disrupted the balance of the partnership, undermined the core trust presumed between partners, or imposed unjustified obligations on the company. The analysis also considers the possibility of remediation: can the breach be addressed through a disciplined settlement or a reorganization of management, or has the damage reached a level where continuation of the partnership becomes a burden and a source of risk? This evaluation ultimately determines the true direction of the dispute—whether it remains within a limited corrective framework or escalates toward formal legal protection and decisive resolution mechanisms.

Partnership Dissolution Conditions Based on Legal Analysis and the Best Action Plan

Based on the results of the preceding legal analysis, partnership dissolution conditions are formulated not as abstract concepts, but as an integrated and executable action plan that takes into account the client’s interests and legal security. At this stage, the most appropriate path is determined: whether dissolution should occur amicably through an exit agreement, mutual release, and settlement of accounts, or whether the circumstances require judicial or arbitral proceedings to seek termination or liquidation. The practical requirements for each option are also defined, including formal legal notices, necessary evidence, structuring financial claims, addressing existing debts, and ensuring the protection of assets and the integrity of accounts. At this point, partnership dissolution conditions evolve into a clear working agenda agreed upon with the lawyer, aimed at bringing the relationship to a definitive end, safeguarding rights, preventing future disputes, and achieving an exit with the least possible losses and the strongest legal position available.

Calculating the Cost of Waiting vs. Filing a Lawsuit

If the situation continues for another month under the same pattern of delay, the question I raise as a lawyer is not “can we endure it?” but rather: what is the cost of endurance to your business and your legal exposure? Every day of delay means suspended decisions, disordered accounts, and liabilities that may be imposed on you by virtue of the partnership, even if you were not the party responsible. As time passes, the burden of proof becomes heavier; facts become intertwined, documents are delayed, and the breach may turn into a fait accompli that weakens your position later on. Moreover, continued unilateral conduct by the other partner without proper controls may generate new obligations or harm assets and reputation—damage that expands long before it appears on financial statements. From a legal perspective, filing a court claim is therefore not viewed as escalation, but as a necessary step to stop the bleeding, secure rights, and place the dispute on its proper legal track before losses multiply.

Determining the Exit Strategy: Negotiation, Litigation, or Arbitration

One of the key issues that must be resolved before formally engaging your legal team is to carefully assess the end point of the negotiation path. Is there genuine room within the commercial relationship for a disciplined and enforceable settlement, or will negotiation merely be used as a cover for delay and the depletion of time? At this stage, the lawyer applies a practical test to negotiation—not general slogans—such as the clarity of demands, the willingness to provide guarantees, and the ability to submit documents and settle accounts within a defined timeframe. If the indicators are positive, a written settlement is constructed to conclusively close the dispute, prevent its recurrence, and clearly define the exit mechanism, obligations, timelines, and penalties in the event of breach. If, however, it becomes apparent that the other party is maneuvering or refuses to commit to any enforceable obligation, the lawyer’s responsibility is to terminate negotiations at the appropriate moment and transfer the matter to the decisive track—litigation or arbitration—while preparing the evidence and claims from the very outset.

First: Negotiation

Negotiation in partnership disputes is not a space for courtesies; rather, it is an early testing tool to assess the other party’s true intentions before moving toward partnership dissolution conditions and their decisive legal paths. Drawing on our experience as lawyers in partner disputes, we consider it essential to define—together with you, as one team—the precise scope of negotiation: what may be conceded and what is fundamentally non-negotiable. Negotiations are then conducted on the basis of documents, not statements, so that every position taken is directly linked to the partnership agreement or to verifiable financial realities. A written settlement proposal is presented, setting out the exit mechanism, valuation of shares, settlement of accounts, and a binding timeline supported by clear enforcement mechanisms. At this stage, negotiation is not left open-ended; it is subject to a defined timeframe and a clear endpoint. If genuine seriousness and commitment are demonstrated, the process proceeds to closure. If delay or manipulation becomes apparent, the team’s duty is to halt negotiations immediately and shift the matter to the decisive track without further waste of time or rights. Finally, expectations must be managed: in many cases this stage serves only as a preliminary round for gaining time or testing positions, yet in our experience it remains critically important, as it allows us to map the opposing side’s front lines and identify who will truly lead the next phase—including opposing counsel.

Second: Arbitration

Commercial arbitration is the preferred path when the objective is swift resolution, confidentiality, and the issuance of a binding decision by specialists who understand the substance of commercial disputes—not merely their procedural aspects. Where the partnership agreement contains an arbitration clause, activating it becomes a decisive step that allows no hesitation and must be handled with precision from the outset. At this stage, the arbitration clause is reviewed in terms of its scope, binding effect, and the competent arbitral institution, followed by professional preparation of the arbitration file, including the definition of claims, organization of facts, and submission of evidence in line with arbitral standards. It is worth noting that the Managing Director is a member of the Chartered Institute of Arbitrators (CIArb) and has been selected by numerous companies to act as an arbitrator in their commercial disputes, reflecting practical expertise in managing complex proceedings and drafting effective arbitral awards. Where the partnership agreement provides for arbitration, we are fully prepared to handle the case and represent you, or to act as arbitrators where legally appropriate, in a manner that ensures integrity, independence, and procedural fairness.

Third: Litigation

When opportunities for negotiation are exhausted, or when the risk of continuation outweighs the cost of decisive action, litigation becomes the natural path to halt the dispute and place it under the authority of the court. Resorting to the judiciary does not signify escalation as much as it signifies regaining control: establishing facts, protecting rights, and preventing any conduct that may harm the company or the partners. At this stage, the focus shifts from managing a disagreement to managing a lawsuit—by formulating clear claims, presenting organized evidence, and seeking urgent measures where necessary, such as injunctions against disposition or applications to preserve evidence. Litigation imposes an inescapable procedural rhythm and places the delaying party under binding procedural and time obligations they cannot obstruct. The objective is clear: a judicial judgment that ends the state of uncertainty, reallocates rights and obligations on a binding legal basis, and provides a final exit from the dispute with the strongest possible legal position, in accordance with the partnership dissolution conditions dictated by the facts and evidence.

It is worth noting that we manage the legal affairs of numerous companies, which has given us deep practical insight into dealing with partners who operate outside the legal framework and managing disputes without compromising the stability or interests of the business entity. We are also acutely aware of the sensitivity of such cases—particularly in family businesses or partnerships interconnected with other entities not directly involved in the dispute. Accordingly, we handle litigation with precision to protect existing relationships, prevent the dispute from extending to uninvolved parties or partnerships, and maintain the highest levels of discipline and confidentiality, achieving legal resolution without dismantling the commercial structure as a whole.

Fourth: Urgent Lawsuit

Urgent proceedings are not a substitute for the merits of the dispute; rather, they are a decisive tool when time is working against you and when there is a real risk that certain actions may alter the status quo before the case is adjudicated. We resort to urgent measures where there is a serious threat, such as the dissipation of assets, withdrawal of funds, manipulation of accounts, concealment of documents, or unilateral decisions that may impose liabilities on you without your knowledge. At this stage, we do not wait for the “end of the file”; instead, we move swiftly to obtain immediate relief that preserves your legal position and halts the harm—such as applications to preserve evidence, injunctions against disposition, orders compelling the production of documents, or any other appropriate protective measure depending on the circumstances of the case. This is where early preparation of evidence becomes critical, as urgent applications are founded on demonstrating an imminent risk and the necessity of immediate judicial intervention. The objective of urgent proceedings is to impose a procedural tempo that prevents delay, secures a safe foundation for subsequent actions, and paves the way for the disciplined application of partnership dissolution conditions—without allowing the other party to gain a head start that could later complicate the recovery of rights.

Legal Consultations

To obtain specialized legal advice or to discuss your company’s needs in managing legal affairs, you may contact Mohammed Al-Muzayen Law Firm through the Corporate Client Services line at (0590098800). Our services are available throughout the business week, from Sunday to Thursday, between 8:00 a.m. and 4:00 p.m. (Riyadh time).

The firm operates through a professional administrative team qualified to work with both local and international companies. Communication is available in English and French, in addition to Arabic, ensuring smooth coordination and a clear understanding of legal requirements—particularly for companies with multi-investment structures and diverse nationalities.

For more information about our legal consultation services, you may review the Legal Consultation Guide prepared by our team by clicking on (Legal Consultation Guide).

Frequently Asked Questions (FAQ) about Dissolution of Partnership

What is the legal position on dissolving a partnership unilaterally?

Unilateral dissolution is not a discretionary act a partner may take at will. It depends on whether the partnership dissolution conditions are satisfied under law or under the partnership agreement. As a general principle, a partnership is a contractual relationship and is not terminated by one party’s will except in limited cases—such as an explicit contractual clause allowing unilateral termination subject to defined requirements, a material breach by the other partner that justifies termination, or circumstances making continuation impossible because the dispute undermines the partnership’s purpose. Where no legal or contractual grounds exist, unilateral termination may expose the terminating partner to liability and damages. In practice, the type of partnership and the legal form of the entity are examined, the alleged breaches and evidence are assessed, and the proper legal steps are taken to ensure dissolution is carried out correctly while protecting rights.

How is each partner’s share calculated upon dissolution?

Calculating each partner’s entitlement starts with two questions: what is the legal basis of entitlement (the partnership agreement/articles of incorporation), and what financial base will be used for calculation? Typically, liabilities are addressed first—debts, expenses, ongoing contracts, and third-party rights. Assets are then identified, including cash, inventory, fixed assets, receivables, and intangible rights where applicable. Next comes valuation: is there an agreed valuation mechanism in the contract, or is an expert/forensic accountant required? The net position (assets minus liabilities) is then distributed according to ownership ratios, taking into account non-cash contributions, partner loans, and prior withdrawals that require reconciliation. In cases involving breach, damages may be added or proven losses may be deducted. The key is a “closed” accounting supported by documents—not estimates or informal figures.

Can a partnership agreement be terminated unilaterally?

A partnership agreement may be terminated unilaterally only if partnership dissolution conditions are met under law or contract. The first scenario is an explicit contractual clause permitting termination by one party, typically after notice, specified time periods, and compensation where required. The second scenario is a material breach by the other party that makes continuation impossible or causes demonstrable harm (such as unauthorized disposal of funds, refusal to provide accounts, commingling of assets, or obstruction of management that defeats the contract’s purpose). The third scenario is impossibility of performance or the end of the partnership’s subject matter. If these grounds do not exist, unilateral termination may be deemed unlawful and lead to a damages claim. Accordingly, it is advisable to review the contract, document breaches, issue a properly drafted notice, and then select the correct path—settlement, litigation, or arbitration—depending on the agreement.

How can I terminate a participation (joint venture) agreement?

Terminating a participation agreement should follow an organized path that protects you from a reactionary step that may backfire.

1. Review the agreement: Identify termination provisions, notice requirements, and the agreed exit mechanism.

2. Gather evidence: Document breaches using bank statements, correspondence, or proof of non-compliance.

3. Issue formal notice: Specify the breach and grant a “cure period” if required by contract.

4. Define objectives: Decide if you are seeking simple termination or full accounting with compensation.

5. Select the binding route: If negotiation fails, move to arbitration (if an arbitration clause exists) or litigation before the Commercial Court.

How can I verify a licensed lawyer in Riyadh?

To verify licensed lawyers in Riyadh through the Practicing Lawyers Directory:

1. 1. Log in to the Najiz portal using your National Access (Nafath) account.

   2. From the main page, select All e-Services.

   3. Under service packages, choose Licensing.

   4. Access the Practicing Lawyers Directory service.

   5. Click Submit New Request.

   6. Use the available search filters (e.g., city: Riyadh, name, etc.).

   7. Click View Approved Lawyers Lists to confirm the lawyer’s licensing details.

Conclusion