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Introduction to this document

Dissolution of partnership

You’ve broken the news to the partners that you’re leaving the partnership. It’s now time to sort out the nitty-gritty. Use our deed of dissolution to focus on what’s important and to ensure that all the loose ends are tied up before you go.

Advice

Dissolution occurs when the partnership ends. If the partnership agreement is silent on this aspect, then you need to refer to the Partnership Act 1890 (“the Act”).

Before running off to find a copy of the Act, do check out the terms of your partnership agreement to see what it says will happen if the partnership is dissolved.

And if the agreement’s silent?

Then, before consulting the Act, see if you can negotiate terms with the other partners. They may be keen to carry on the business without you. Obviously, your share in the business will need to be valued by an accountant. Likewise, if a value can be agreed, you’ll need to sort out a timescale for this to be paid back - don’t forget to provide for interest to be included. Additionally, there may be certain clients that you want to take with you. If so, refer to this in the agreement.

Tip

If you manage to reach agreement with the other partners that they’ll continue the business, make sure that notice is given to everyone whom the partnership did business with, including clients, to inform them of the change. It’s also important to put a general notice in the London Gazette (http://www.gazettes-online.co.uk) that you’ve left the partnership. If you fail to do this, under the Act you can be liable for the acts of your former partners after you’ve left the business, if a creditor was unaware that you’d left the partnership. You’ll also want an indemnity from the partners to be responsible for all debts, claims etc. that arise after you’ve left the business.

If the Act applies

Firstly, the assets of the partnership must be used to pay off creditors. After that, they’re used to pay off partners’ loans, then satisfy their capital contributions and finally, if there’s anything left over, to be paid to the partners in the same proportion that profits are shared i.e. if there’s nothing agreed, equally.