Olivia is the Head of Legal at Lawpath, where she helps Australian businesses navigate complex legal challenges with practical, commercially minded advice. She specialises in employment matters, contract drafting, pre-litigation strategy, dispute resolution, commercial law and startup compliance, and has supported clients across technology, healthcare, professional services and retail. Olivia is passionate about making legal services accessible, personable and effective for every client.
A withdrawal from a partnership is when one partner formally leaves a business partnership, usually by giving written notice, while the remaining partners keep trading or the business is wound up. Legally, any change in partners dissolves the old partnership. In practice, the business can often carry on under the same ABN and TFN.
Here’s the part most people learn the hard way. Walking out the door doesn’t mean you’ve left. Plenty of former partners discover months later that their name is still on the lease, the supplier account or the bank’s guarantee, and the bill lands with them anyway.
- Check your partnership agreement first. It sets your notice period, valuation method and any restraints, and those deadlines start when you give notice.
- A withdrawal technically dissolves the partnership, but the business can keep going. If the continuing partners take over and nothing else changes, the ATO usually treats it as the same partnership with the same ABN and TFN.
- Leaving doesn’t release you from debts. You stay liable for debts incurred while you were a partner, and can be caught by new ones until creditors are told you’ve gone.
- In a two-person partnership, the one who stays becomes a sole trader. That means a new ABN, a business name transfer and updated contracts.
- No agreement means your state’s Partnership Act applies. Its default rules split capital and profits equally, whoever did the work.
Can you withdraw from a partnership without closing the business?
Yes. One partner can withdraw while the business continues with the remaining partners or a replacement partner.
Technically, a partnership dissolves whenever its members change. That’s a legal label, though, not a shutdown order. The ATO separates two outcomes, and which one you land in decides how much paperwork follows.
- Technical dissolution: the continuing partners take over the assets and liabilities, and the business carries on without an apparent break. The ATO calls this a reconstituted partnership.
- Full dissolution: the original partnership is wound up. If anyone keeps trading, they do it through a new partnership or a different structure.
| What you want to happen | Likely pathway |
|---|---|
| Leave and let the other partners continue | Withdrawal or retirement |
| Sell your share to the other partners | Partner buy-out |
| Stop day-to-day work but keep a financial stake | Restructure roles and amend the agreement |
| Bring in a replacement partner | Withdrawal plus admission of the new partner |
| Get a partner out who won’t leave | Expulsion clause, negotiated exit or court application |
| End the business entirely | Dissolution and winding up |
What happens to the partnership when one partner leaves?
Expect the ATO to treat the changed partnership as the same continuing entity when all of these apply:
- At least one partner is common to the partnership before and after the change.
- The partnership agreement has a continuity clause, or the partners’ conduct shows they meant to continue.
- The business keeps its assets, customer base, business name and the nature of what it does.
- There is never a period where the business has only one partner.
That last condition catches more people than any other. Which brings us to the trap.
The two-person partnership trap
If there are two of you and your partner withdraws, the person left behind isn’t a partnership any more. You’re a sole trader.
That means a new ABN in your own name, a transfer of the business name to you, updated bank accounts and fresh contracts where suppliers or clients insist on dealing with the right legal entity. The old partnership ABN gets cancelled once its final return is done. Founders who assume “nothing changes” here tend to keep invoicing under a dead ABN for months.
Want to avoid it? You need a direct swap, where a new partner takes the outgoing partner’s interest on the same day. Plan that handover carefully if keeping the existing registrations matters to you.
What should you check in your partnership agreement before you withdraw?
Your Partnership Agreement is your rulebook for leaving. Read it before you say a word to your partner, because it may set deadlines that start running the moment you give notice.
Look for clauses covering:
- The notice period and how notice must be delivered
- Voluntary withdrawal or retirement rights
- Buy-out rights and any right of first refusal for the other partners
- How a departing partner’s share is valued and when it gets paid
- Goodwill, capital accounts and partner loans
- How profits and losses are split up to the exit date
- Restraint, non-compete and client non-solicitation terms
- Ownership of clients, intellectual property and online accounts
- Dispute resolution steps, such as mandatory mediation
- What events dissolve the partnership outright
Here’s what we see often: the agreement covers how the partnership starts in loving detail and says almost nothing about how it ends. If yours is thin on exit terms, that’s normal. It just means the fallback rules in your state’s legislation will do more of the work.
What does an exit clause in a partnership agreement look like?
An exit clause sets out how a partner leaves, what they’re paid and what they can’t do afterwards. A good one answers three questions: how much notice, how the price is worked out, and when the money changes hands.
Here are two plain-English examples to show the shape. They’re illustrations, not drafting you should copy into a live agreement without advice.
Voluntary withdrawal. A Partner may withdraw from the Partnership by giving at least 90 days’ written notice to each other Partner. On the withdrawal date, the remaining Partners must purchase the withdrawing Partner’s interest at the price set under the valuation clause. The Partnership continues between the remaining Partners and is not wound up.
Valuation and payment. The price of a withdrawing Partner’s interest is their capital account balance plus their share of undistributed profits and goodwill, as determined by an independent accountant agreed by the Partners. The price is payable in four equal quarterly instalments starting 30 days after the withdrawal date, secured by a personal guarantee from the remaining Partners.
Notice the instalment and security terms. Without them, the departing partner is effectively an unsecured lender to the business they just left. Most founders forget this until the second payment is late.
What if your partnership agreement doesn’t explain how to withdraw?
Then your state or territory’s Partnership Act fills the gaps. Australia has no single national partnership law.
| Jurisdiction | Legislation |
|---|---|
| Australian Capital Territory | Partnership Act 1963 (ACT) |
| New South Wales | Partnership Act 1892 (NSW) |
| Northern Territory | Partnership Act 1997 (NT) |
| Queensland | Partnership Act 1891 (Qld) |
| South Australia | Partnership Act 1891 (SA) |
| Tasmania | Partnership Act 1891 (Tas) |
| Victoria | Partnership Act 1958 (Vic) |
| Western Australia | Partnership Act 1895 (WA) |
Across states, the Acts are broadly similar. What matters most is what kind of partnership you have.
- Partnership at will: no fixed end date and no specific project. Any partner can generally end it by giving notice to the others.
- Fixed-term or project partnership: you can’t simply walk away early. Leaving before the term ends can expose you to a claim for the loss your exit causes.
Default rules are blunt. Unless you’ve agreed otherwise, partners share capital and profits equally, whoever did the most work. Our guide on ending a partnership without an agreement covers this scenario in more depth.
How do you formally withdraw from a partnership?
Treat your withdrawal from a partnership as two jobs running side by side: the legal exit and the commercial handover. Here’s the order that works.
1. Review the partnership agreement
Note the notice period, delivery method, valuation rules and any restraints. Write down the dates each clause would produce if you gave notice today.
2. Give written notice
Use a Notice of Withdrawal from Partnership and deliver it exactly the way the agreement requires. Keep proof of delivery. A text saying “I’m out” is not a notice, and arguments about when someone really left are expensive.
3. Agree the effective withdrawal date
Pick a date that gives enough time to close the books, hand over clients and update registrations. End of month or end of quarter makes the accounts far easier.
4. Document the financial settlement
Record exactly what you receive or pay: capital account balance, partner loans, profits to date, goodwill and the payment schedule.
5. Allocate assets, debts and contracts
Decide who keeps each asset, who takes over each debt, and who is responsible for the lease, supplier accounts and customer jobs in progress.
6. Update registrations and records
Work through the ABN, TFN, GST, PAYG withholding, business name, licences, bank mandates and insurance. More on this below.
7. Tell the people who need to know
Customers, suppliers, staff, lenders, the landlord and your insurer. This step does more than keep things tidy. It’s what protects you from future debts, as the next section explains.
Are you still liable for partnership debts after you withdraw?
For debts incurred while you were a partner, yes. Leaving doesn’t wipe them. Every partner is personally liable for partnership debts, and that exposure stays with you after you go.
You can also be caught by debts incurred after you leave. Under the Partnership Acts, someone who dealt with the firm while you were a partner can treat you as still being one until they’re told otherwise. So if your old partner orders $20,000 of stock on the existing account next month, the supplier may come after you.
Three things close that door:
- Actual notice to every customer, supplier, lender and landlord who dealt with the partnership. Put it in writing.
- A public notice of the change, usually in your state’s Government Gazette, which covers people who never dealt with the firm directly.
- A formal release from each creditor. A bank or landlord has to agree to let you off a loan, lease or personal guarantee. Your ex-partner promising to cover it is not a release.
Where a creditor won’t release you, the next best protection is an indemnity from the continuing partners in your exit agreement. It won’t stop the creditor chasing you, but it gives you a clear right to recover the money.
How do you remove a partner from a partnership?
Sometimes the question isn’t how to leave. It’s how to get someone else out. Here’s the uncomfortable truth: unless your agreement has an expulsion clause, a majority of partners generally can’t vote a partner out.
Your realistic options are:
- Use an expulsion clause, if your agreement has one. Follow its process to the letter, because a defective expulsion can be challenged.
- Negotiate a buy-out. Most removals end this way, even the ugly ones.
- Dissolve and restart. In a partnership at will, any partner can give notice to end it. The continuing partners can then offer to buy the business assets during the winding up.
- Apply to court. Courts can order dissolution on grounds such as serious misconduct, persistent breach of the agreement, permanent incapacity, the business only running at a loss, or where it’s just and equitable.
If you suspect a partner is misusing money, lock down banking access and preserve the records before you raise it. We see this repeatedly: by the time the conversation happens, the money trail has gone cold. Our guide on what to do when a partner breaches the agreement walks through the options.
Can one partner buy out another partner?
Yes, and it’s the cleanest way for the business to survive an exit. The remaining partners buy the departing partner’s interest and keep trading.
Check first whether your agreement sets a mandatory buy-out process, a valuation formula, a right of first refusal or limits on selling to an outsider. If it does, those terms bind you.
What goes into the buy-out price?
Most of the fights we see are about what “the business is worth”. Agree on the method before anyone names a number. A proper business valuation looks at:
- The departing partner’s capital account and any loans they made to the business
- Retained profits and undistributed income
- Cash, debts and contingent liabilities
- Stock, equipment, vehicles and property
- Goodwill, customer relationships, trade marks and domain names
- Work in progress and unpaid invoices
- Personal guarantees still in the departing partner’s name
- Tax costs triggered by the transfer
A common mistake is treating the capital account balance as the price. It usually isn’t. Capital accounts record what went in, not what the business is worth now, and goodwill can dwarf them in a profitable service business.
Price stalemates are the other pattern we see constantly. One partner wants out, the other stalls because they can’t afford the price or can’t let go. If you’re stuck, propose an independent valuer whose figure both of you agree in advance to accept. It takes the ego out of the number.
Can a partner step back without leaving the partnership completely?
Yes, if every partner agrees and you document it. Stepping back is a negotiated restructure, not a right.
Your amended agreement should deal with management duties, voting rights, authority to sign contracts, bank access, profit share, drawings, future capital contributions and a path to a full exit later.
Be blunt with yourself about one thing. Calling someone a “passive partner” changes nothing about their liability to outsiders. They’re still a partner, still personally liable, and still bound by contracts the active partners sign. If limited exposure is the goal, a full withdrawal or a move to a company structure does the job. A job title doesn’t.
What happens to the ABN, TFN and GST when a partner leaves?
It depends on whether the partnership is reconstituted or replaced.
| Situation | ABN and TFN | GST | Tax returns |
|---|---|---|---|
| Reconstituted partnership | Keep existing | No new registration needed | One return for the full year |
| New partnership formed | New ABN and TFN | New registration if required | Separate returns for old and new partnerships |
| Only one person left | New ABN as a sole trader | Register in own name if required | Final partnership return plus own return |
For a reconstituted partnership, tell the ATO within 28 days of the change if you want to keep using the partnership’s TFN. A continuing partner confirms that everyone agrees to the reconstitution and supplies the date and the names of new, continuing and retiring partners.
Even then, the year-end return must show distributions to everyone who was a partner at any point in the year, including you if you left mid-year. Expect a call asking for your details.
Registration checklist
When a partner leaves, check and update:
- ABN details, or a new ABN if you’re continuing alone
- Business name registration, which needs transferring if the trading entity changes
- GST and PAYG withholding registrations
- Licences and permits held in a partner’s name
- Bank signatories and online banking access
- Insurance policies and the named insured
- Payroll, superannuation and employee records
- Supplier portals, payment platforms and software subscriptions
What happens to clients, contracts and employees?
Deal with each of these in writing before the withdrawal date, not after:
- Contracts: some customer and supplier contracts need consent or a formal assignment when the parties change. Check for change-of-control and assignment clauses.
- Clients: agree who keeps which clients and files. Pair it with clear non-solicitation terms so nobody’s guessing.
- Work in progress: decide who finishes current jobs and who gets paid for unbilled work.
- Staff: confirm who employs them after the change. If the employing entity changes, employment contracts and entitlements need attention.
Clients often move with the person they actually deal with, whatever the agreement says. Build that reality into the price rather than fighting it afterwards.
Do you need a dissolution or exit agreement when one partner leaves?
Strictly, no. Practically, yes. A notice starts the exit. An agreement finishes it.
A partnership exit agreement, often called a deed of retirement or dissolution deed, should cover the withdrawal date, final accounts, the payment and its security, who takes which assets and debts, client and contract arrangements, ownership of the business name and IP, confidentiality, restraints, indemnities and a mutual release.
It’s usually signed as a deed. A release deed is what makes the “we’re square” promise stick, so neither of you can come back later with a fresh claim.
One warning from consultations. Read restraint clauses closely. A restraint that’s wider than needed to protect the business can be unenforceable, and a partner who signs one without checking may be giving away more than they realise.
What are the tax implications of withdrawing from a partnership?
More than most people expect. Each partner owns a share of each partnership asset for tax purposes, so selling your interest can trigger capital gains tax on your share of things like goodwill, property and equipment.
Work through these issues with your accountant:
- CGT on your interest in each asset, and whether the small business CGT concessions apply
- How the buy-out price splits between capital, profit share and loan repayment
- GST on any asset transfers
- Trading stock and depreciating assets moving between partners
- Your share of income up to the withdrawal date
How the payment is described in the agreement can change how it’s taxed. Get the partnership tax advice before the agreement is signed, not after. A dedicated accountant can model the options for a fraction of what a bad structure costs.
When does the whole partnership need to be dissolved?
Full dissolution makes sense when nobody wants to carry on, or when you can’t agree on terms that let someone continue. Common triggers include the agreed term ending, all partners agreeing to close, notice ending a partnership at will, the death or bankruptcy of a partner (unless the agreement says otherwise), insolvency and court orders.
Dissolution ends the relationship. Winding up is the work that follows: collecting debts, paying creditors, selling or splitting assets, lodging final returns and cancelling registrations. Our guide on how to dissolve a partnership walks through the full wind-up.
What we see in Lawpath consultations
Across the partnership exits our lawyers help with, a few patterns keep coming up.
Most partnerships never had a written agreement. Handshake partnerships are the norm, not the exception. That leaves the state Act’s default rules in charge, including equal shares regardless of who did the work. It surprises people every time.
Instagram causes more fights than the equipment. Social media accounts, websites, domain names and content are now some of the most contested assets in a partnership split. A common flashpoint is an account registered to one partner’s personal email but built for the business. If digital assets matter, list them in the exit agreement and transfer them properly with a Deed of Assignment.
Deeds arrive with impossible deadlines. We regularly see partners handed a dissolution deed late at night with a same-day deadline. Pressure is a negotiating tactic. A reasonable deadline is fine. A deed demanding you delete accounts or give up rights before you’ve had advice is a reason to pause.
Some “partners” are actually shareholders. If you trade through a Pty Ltd, you’re not in a partnership at all, whatever you call each other. Different rules apply, and leaving runs through your shareholders agreement instead.
What should you do before telling your partner you want to leave?
Prepare first. A rushed announcement makes it harder to negotiate value, keep clients and get released from debts.
- Read the partnership agreement and note every deadline it creates.
- Check your capital account and the business’s current financial position.
- List every personal guarantee and liability in your name.
- Decide what you actually want: withdrawal, buy-out, a step back or full dissolution.
- Work out how your interest will be valued and what figure you’d accept.
- Identify the contracts, licences and online accounts the exit will affect.
- Get legal and tax advice if the exit is contested or the money is significant.
- Prepare your written notice so it’s ready to send.
Frequently asked questions
Can I withdraw from a partnership without my partner’s agreement?
Usually, yes. In a partnership at will, any partner can end it by giving notice. If your agreement or a fixed term says otherwise, follow those rules, because leaving early can expose you to a claim for the loss your exit causes.
How much notice do I need to give to leave a partnership?
Whatever your partnership agreement says. Many agreements set 30 to 90 days. With no agreement, notice to the other partners can end a partnership at will, but give a realistic date so accounts, clients and registrations can be handled properly.
Am I liable for partnership debts after I withdraw?
You stay liable for debts incurred while you were a partner. You can also be liable for later debts to anyone who dealt with the firm and wasn’t told you left. Give written notice to creditors and ask lenders and landlords for a formal release.
Does a partnership need a new ABN when a partner leaves?
Not if it’s a reconstituted partnership. The ABN, TFN and GST registration can continue, provided you tell the ATO within 28 days. A new ABN and TFN are needed if a new partnership is formed after a full dissolution.
What happens if only one partner is left?
The partnership ends, because one person can’t be a partnership. The remaining owner becomes a sole trader and needs their own ABN, a business name transfer and updated contracts and bank accounts.
Can partners remove another partner from the partnership?
Only if the agreement includes an expulsion clause. Otherwise the options are a negotiated buy-out, dissolving and continuing without them, or asking a court to dissolve the partnership on grounds like misconduct or persistent breach.
Do I pay capital gains tax when I leave a partnership?
Possibly. Selling your interest can trigger CGT on your share of partnership assets such as goodwill and property. The small business CGT concessions may reduce or remove it. Get advice before you sign the exit agreement, because its wording affects the tax outcome.
Is a Notice of Withdrawal from Partnership enough on its own?
It starts the process but rarely finishes it. The notice tells your partners you’re leaving and when. An exit agreement or deed then settles the payment, assets, debts, releases and restraints so nobody can reopen the deal later.
What’s the difference between dissolution and winding up?
Dissolution ends the legal relationship between the partners. Winding up is the practical work afterwards: collecting debts, paying creditors, dividing assets and cancelling registrations. A partnership can dissolve while the business continues in a new form.
Leaving a partnership can feel like a big, messy unknown. Broken into steps, it’s a series of decisions, and you’ve just worked through every one of them. Plenty of business owners do this every year and come out the other side with a clean break and their relationships intact.
One thing is worth doing before you send that notice is a quick check from someone who handles partnership exits every week. Talk to a Lawpath lawyer about your partnership exit and go into the conversation knowing exactly where you stand.
