Disolving your business partnership

David Sullivan, Managing Partner

There are a number of different reasons for dissolving a business partnership and they are not all because there is a disagreement or dispute. Your business partner may have died or your partnership has simply come to an end due to either having a fixed term partnership agreement or that you just want to go your own way. Whatever the reasons, you should do your best to find a way to dissolve your partnership without disagreements or conflict.

How you end your partnership depends on how your partnership was set up in the first place. If you have a partnership agreement, this should outline the processes involved, providing it was drafted correctly. The agreement will help to end the partnership cleanly and effectively, in the manner that you all agreed at the outset. The partnership agreement should outline what happens if one partner wants to leave and the other wants to stay and continue to run the business, but also what happens if all the partners want to dispose of the business after ending their partnership.

Where there is no partnership agreement in place or if how to dissolve a partnership was not included in the partnership agreement, you will have to rely on the Partnership Act 1890. This is an old piece of legislation which says that any partnership is dissolved when:

• A partner dies
• A partner becomes bankrupt
• The partnership was only for a fixed term and this term has ended
• A partner gives notice to the others of their intention to dissolve the partnership

Where there is no partnership agreement, you can give notice of the dissolution of your partnership and you do not have to put it in writing and the notice can take immediate effect, however it would be better for everyone involved to give your partners some notice of your intentions so they can make plans for your exit.

If the remaining partners in the business do not want to buy your share of the partnership, the business will have to be sold. You will all get more for your money if you can keep the business trading, so planning and discussing an exit strategy is best for everyone involved. Once the business is sold, any creditors should be paid in full, and partners should be paid back, with interest, any money they lent to the business. Once this is done, each partner receives their capital and then anything left over is divided as per their profit share agreements.

For more information about this article or any aspect of our business and personal legal solutions, please call David Sullivan on +44 (0) 28 9077 4500 (there is no charge for initial telephone discussions).