Dissolution of Partnerships


Partnership Agreement
Business Pack
Employers Pack
10. The partnership can also be dissolved with notice if:

i. an event which makes it unlawful for the business or for the partners to carry on the partnership occurs.

ii. the partnership was entered into for a fixed period and the fixed period has come to an end.

iii. the partnership was entered into for a single venture or undertaking and that venture or undertaking has come to an end.

11. A partnership will be dissolved without notice by the death or bankruptcy of any partner or by Order of the Court.

12. Partners are bound to make available to the other partners or their legal representatives true accounts and full information about matters affecting the partnership.

13. If a partner has assigned his interest in the partnership the assignee is not entitled to interfere in the management or administration of the partnership business, or affairs or to require production, or inspection of the partnership books. The assignee is only entitled to receive the share of the profits the assignee partner would have received.

14. When a partnership has been dissolved and the accounts are to be settled between the partners then losses shall be paid first out of profits, then capital and lastly from the partners themselves in the proportion in which they are entitled to share profits. The order in which accounts will be settled shall be:

i. Payment of debts and liabilities of the business to people who are not partners.

ii. Payment to each partner proportionally for the advances due to them (excluding advances from capital).

iii. Payment to each partner proportionally for what is due to him in respect of capital.

iv. Balance (if any) to be divided amongst the partners in the proportion in which they are entitled to share the profits.

The above rights can be varied by agreement in writing which is why it is often advisable to have a proper written partnership agreement. In addition the 1890 Act also imposes certain liabilities on partners and if the partners wish to avoid such liabilities they must specify in the partnership agreement what a partner can or cannot do and when decisions should be made in consultation with the other partners.

Examples of potential liabilities include:

1. Every partner will be regarded as an "agent" of the business and of the other partners, their actions will bind the business and the other partners if it is carried out in the usual course of business (e.g. entering into contracts, or borrowing money). However, their actions cannot bind the business or the other partners if they did not have authority to act for the business or the person they dealt with knew they had no authority or did not know or believe they were a partner of the business.

2. The business will be liable if a partner or the business itself receives money or property of a third party and deals with it in a dishonest or wrongful way. The business itself will be responsible for making up the loss.

3. If a Court Judgement is obtained against a partner the Court can order payment from the partner's interest in the partnership property and profits and also appoint a Receiver to that partner's share of the profits or the partner's monies if the partner is made bankrupt.

4. All property and other rights or interests which are originally or subsequently brought into the partnership are considered to be partnership property and are to be used by the partners exclusively for partnership purposes. Property bought with partnership money will be taken to have been bought for the business.

Partnership Agreement
About Partnerships