How to exit a Partnership Agreement

You and your business partner were once what Hewlett, was to Packard. Recently, your business has been experiencing some financial difficulty. Your partner has proven that she is not the battler that she once was, and has decided that she no longer wants to be part of the partnership. So, what next?

All good things must come to an end, and when they do it’s important to understand how to dissolve your partnership agreement.

Table of Contents

When is a Partnership Agreement dissolved?

A partnership agreement is considered to be terminated effective from the point one of the partners leaves. If the remaining partners would like to continue they will need to establish a new partnership. A number of situations give rise to need to dissolve a partnership agreement. These include:

  • The term of the partnership lapsing
  • A partner provides written notice to other partners about their desire to exit the partnership
  • A court order
  • A partner no longer being legally able own a business
  • The death of one of the partners
  • The bankruptcy or insolvency of the partnership.

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What to do after dissolving your partnership agreement?

The process, terms and conditions involved in dissolving a partnership may be outlined within your formal partnership agreement. For example, when you and your partner first drafted the agreement you may have decided that if someone ‘wants out’, then they must provide 4 months notice before the agreement is dissolved. However, If your partnership agreement does not outline any specific requirements for dissolving the agreement, then the terms and conditions will be guided by legislation. The primary concerns of the legislation is distribution of your partnership’s’ assets. It is expected that after your agreement is dissolved, your partnership’s losses will be paid out of profits and capital, assets will go towards paying debts, and then each partner will be paid for the value of their capital.

It is important to understand that different states will have different requirements for dissolving a partnership. For example, in Victoria, it is a legal requirement that a post be made in a Government Gazette and a newspaper that is distributed in each district the partnership operates. If you are unable to determine the legal requirements for your state, LawPath can connect you with over 600 expert lawyers.

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