Partnerships – How to Break Them

Working in partnership with others can be a rewarding situation, with everyone working to their strengths and supporting each other. Sometimes though, these relationships break down, sometimes after only a short time and sometimes after a long time. Your partnership could be coming to an end due to retirement or perhaps one of the partners has died and therefore the partnership needs to end.

When a partnership breaks down for whatever reason, it is important to manage it so that your business does not suffer. After all, it is no one’s interests to damage the business as this could mean a reduced payout for the partner leaving the business and reduced income for the remaining partners.

27869186_sDifferent Ways to Dissolve

There are several ways to dissolve a business partnership, one of which is by agreement from all partners involved in the business. There is usually a partnership agreement in place that will assist everyone involved in the dissolution of a partnership. Whether you are just losing one partner or whether the whole business is to be sold on, the partnership agreement should outline the share of the business between partners and what happens in these circumstances.

This will help everyone involved be clear about the terms of the break and should mean there is little chance of disputes as everyone was involved in drawing up the partnership agreement at the start.

Legal Rights

Where there is no partnership agreement, breaking of the partnership can become complicated and can get potentially messy.  In these circumstances, the Partnership Act 1890 will govern the dissolution of your partnership. You can see from the age of this act that it is old legislation and may not fit particularly well in this day and age. The Act says that a partnership will automatically dissolve when:

  • a partner dies
  • a partner becomes bankrupt
  • a court orders the dissolution of the partnership
  • you cannot legally carry on trading
  • the partnership was for a fixed term and it has ended
  • the partnership was for a specific project and that has been completed
  • any partner gives notice to the other partners

In the event of the last clause, the notice does not need to provide any reason for the dissolution of the partnership, nor does it need to provide any notice. In these circumstances, there is likely to cause a lot of problems for everyone involved so it is best in all circumstances to seek specialist legal advice from a commercial solicitor.

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