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How can I terminate (dissolve) a partnership?

A good partnership agreement should specify the circumstances in which a partnership can be terminated and dissolved, as well the consequences of doing so.

The agreement should explicitly set out the events can lead to termination and the dissolution of the partnership.

Some events may automatically lead to termination and dissolution, whereas others may trigger a right, but not an obligation, to dissolve the partnership

It is clearly important to ensure that when a partner wishes to leave the partnership, they are able to do so in an orderly fashion.

Dissolving a partnership

If your partnership agreement does not cover dissolution, or if there is no partnership agreement, then a partnership can only be dissolved in the following circumstances:

  • Notice of termination is served by one or more partners
  • Expiry of a fixed term of partnership - eg, if the partners agreed that they would conduct business for a fixed period and that period has ended
  • Completion of project if the partnership was formed for a specific project
  • Death or bankruptcy of one or more of the partners
  • Illegality - eg, if the activities of the partnership were lawful when the partnership started but because of a change in the law those activities are now unlawful
  • Where one or more partners apply to a court for an order for dissolution

If there is a partnership agreement, that agreement may give additional circumstances for termination so you would need to check the terms of any agreement previously entered into.

Termination by notice

One partner can give a notice of dissolution or termination to the other partners. You do not have to state the reasons for termination and it can have immediate effect.

In most cases it will be wise to serve a notice in writing and in some cases it is an absolute requirement. Although in many cases, notice of an intention to terminate the partnership can be given orally. Alternatively, a partnership agreement may provide for a different method to be employed.

Dissolution on expiry of a fixed term

The partners may have agreed that the partnership will dissolve on the expiry of a pre-agreed fixed term or at a fixed date in the future, unless a partnership agreement says otherwise.

Dissolution upon completion of a project

You may have entered into the partnership for a specific objective or project. Once that is complete, the partnership would automatically dissolve – again, this is unless a partnership agreement provides otherwise.

Termination by virtue of death or bankruptcy

In a simple 2 person partnership, the death or bankruptcy of one partner will automatically dissolve the partnership.

Dissolution for illegality

If carrying on the business of the partnership becomes illegal, then the partnership will dissolve.

Court order for dissolution

Most partnerships do not require court intervention for dissolution because the will of the partners will be sufficient. However, in cases of difficulty, the court will have the power to dissolve a partnership on certain grounds. Clearly, this will involve certain costs and an application to the courts is often the last resort.

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Dated: 15/07/2013

Author: Greg Cox

Dissolving or terminating a partnership

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