Partnerships involve two or more people who are in business together and share ownership of the assets and liabilities of the business. Partnerships can come to an end for many reasons, for example:

  • Disputes of profit share;
  • Day to day control of the business; and
  • Disagreement in the direction of the business and financial circumstances.

If you are in a partnership, it’s most likely you signed a partnership agreement with your partner(s). Conversely, if there is no partnership agreement, the terms and conditions of your partnership will be determined by the state legislation. We can assist with identifying the legal requirements in your state.

Different ways to dissolve a partnership

A partnership can be dissolved when:

  • An agreement between yourself and all other partners have been reached;
  • One partner gives written notice to the other partners;
  • The life of the partnership, according to the partnership agreement, has expired;
  • Any partner dies or becomes bankrupt;
  • A court orders that the partnership ends; or
  • It becomes illegal (e.g. if one partner cannot legally own the business).

Dissolving a partnership does not necessarily mean that the business will stop operating. It can still continue to operate after dissolution, however, it will have a new business structure. There are a variety of different business structures available, such as sole trader or company.

Things to Consider when Dissolving a Partnership

The primary question is whether the business will still remain operational. If so, you need to consider what the new structure of the business will be. For example, it could be a sole trader or a company. You will also need to think about registering a new ABN, register for GST, as well as other considerations.

You also need to think about whether any partners are selling their interests. If they are, do they have any Capital Gains Tax to pay? If you are acquiring the remaining shares of another partner, who will pay the transfer duty?

Administrative Factors

There are also administration factors to consider. Think about whether the partnership books, final tax return and BAS statements have been completed and filed. Tax obligations are important and should be dealt with appropriately so that you avoid issues in the future. Are all of the bank accounts for the partnerships closed? Likewise, are there any outstanding personal or business loans that may be affected? You should consider insurance policies and ongoing contracts with other people, organisations and authorities. These need to be cancelled or transferred into the new name.

Employee Obligations

Employee obligations apply if your partnership had employees. Most often these are based on your employee contracts. If you need to terminate staff or make them redundant, you may need to provide them with payment in lieu of notice. The age of the employee and how long they have worked for you will determine this.

Legal Advice for Dissolving a Partnership

Dissolving a partnership is a complex process. Therefore we recommend you seek legal advice. Our experienced lawyers can take you through the entire process. We will explore your options with you and ensure you have met all your legal obligations. Please contact Etheringtons Solicitors if you have any questions by using the contact form or calling us on (02) 9963 9800.