Business Partnership Dissolution

What is a Business Partnership Dissolution?

Dissolution of a Business Partnership occurs where the contractual relationship holding a Partnership together is dissolved and comes to an end. It’s important to realise however that any contracts made with third parties are not affected by dissolution of a partnership, and those third parties can still force performance of the contract on the Partners. The Partners therefore remain liable for any obligations or debts they took on under the partnership even after dissolution.

How Can I Dissolve My Partnership?

Normally the circumstances that lead to a Business Partnership Dissolution are laid out in a Partnership Agreement. However without a written Partnership Agreement, the Partnership Act 1890 provides for an automatic dissolution to take place on the following events:

  • Death or bankruptcy
  • Expiry of a fixed term Partnership
  • When notice is served
  • When the appropriate aim or task has been completed and the requirement is no longer there
  • Illegality or via Court Order

Subject to any provisions provided in a written Partnership Agreement, any Partner wanting to dissolve their Partnership will need to give notice of their intention to do so to all of the other Partners. This does not have to be in writing, unless the Partnership was created via deed.

What Happens Post Dissolution?

Once the Partnership is dissolved it is a financial and administrative matter to ensure that the business is disposed of correctly, any outstanding contracts are completed and creditors paid off. Any business assets including intellectual property should be realised and divided amongst the Partners. It’s often better to try to sell the business as a going concern rather than piecemeal. However when it comes to dividing the assets of the partnership, especially the business name, phone number, website and other intellectual property, in the absence of a partnership agreement, it’s sadly common for disputes to occur.

Business Partnership Dissolution – Don’t Just Walk Away

Where possible try not to just walk away from the Partnership. As a Partner you owe a fiduciary duty of care to the other Partners and your creditors, which you may be in breach of if by simply walking away.

My Business Partnership Dissolution – What Do I Need to Consider?

Simply click here for a handy partnership dissolution checklist.

Whatever your particular situation, if you are considering dissolving your business partnership, you should seek legal advice from solicitor specialising in partnership dissolution and disputes at the earliest opportunity.

What Happens If One Partner Goes Bankrupt or Dies?

Members of a Partnership are jointly and personally liable for the debts the Partnership incurs. Therefore a creditor can petition for bankruptcy against all or one of the Partners (under Article 8 Insolvent Partnerships Order 1994) without actually having to petition to wind the Partnership up.

The creditor does however have the option of petitioning to wind up the Partnership as an unregistered company (under Article 8 Insolvent Partnerships Order 1994). The law on winding up Partnerships is extremely complex and if you see this happening you should seek experienced legal advice as soon as is possible.

If a Partner does go bankrupt or dies, then you may find that any loan arrangements or mortgages are frozen by the bank. The bank will need reassurance that the Partnership is still able to meet the repayments for the credit without the deceased or bankrupt Partner. In some severe cases you may find that you have to offer more security against the loan. In most circumstances a new bank account will have to be opened under the names of the remaining and potentially new Partners.

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