How to End a Partnership Agreement
How do You End a Partnership Agreement?
The first thing to do when seeking to end a partnership agreement is to refer to your partnership agreement’s clauses that set out how to dissolve or terminate the partnership. If such clauses do exist, then follow the road map and adhere to those requirements. The contract may limit the circumstances in which partners can dissolve the partnership. If the agreement is silent on the matter, then statutory provisions for the dissolution of partnerships apply. If you find the terms concerning dissolution in the partnership agreement to be vague or yielding multiple interpretations, then you may apply to the court for clarification.
According to the Partnership Act (the “Act”) in BC, partnerships are dissolved due to
Bankruptcy (s 36 of the Act),
The death of a partner when there are only two partners (s 36 of the Act),
The completion of the single adventure/undertaking that the partnership was entered into for (s 35(1)(b) of the Act),
An event making business unlawful (s 37 of the Act),
The expiry of the set term of the partnership, if any (s 35(1)(a) of the Act), or
The notice of a partner expressing their intention to dissolve the partnership (s 35(1)(c) of the Act).
Bankruptcy
The Act requires the partnership to be bankrupt, not merely insolvent. Insolvent means the partnership is unable to meet its financial obligations, while bankrupt is a step further requiring the partnership to have made an assignment into bankruptcy or have been declared bankrupt by the court.
Death of Partner
Where there are two partners, the partnership ends upon the death of a partner even if the partnership was entered into for a set term that has not yet expired. Generally, where there are more than two partners, the partnership is not dissolved if one partner dies; however, this depends on the terms of your agreement. If the representatives of a deceased partner and the surviving partners continue the partnership at will, a continuance is always presumed unless there is an agreement to the contrary. The continuance means that the terms of the original partnership persist.
Completion of single adventure/undertaking
If two persons for a partnership to sell a particular item and they do not set a fixed term for expiry, then the partnership continues for as long as the concept may be sold.
Expiry
If there is a set term for the partnership and it passes, the partnership can dissolve. However, if the partners do not dissolve the business and rather continue the business as per usual, it is presumed to be a continuance of the partnership. A continuation of partnership after expiry can occur without any express new agreement. The rights and duties of the partners remain the same as long as they are consistent with the incidents of a partnership at will (s 30 of the Act).
Notice Expressing Intention to Leave
If you want to leave your partnership, consult your partnership agreement for your options. If there is a set term for the partnership, you may need to wait until that time. If you have sufficient reason to justify an early dissolution, you could make an application to the court. If there is no set term for the partnership or if the fixed term has expired, you can choose to end the partnership at any time. To do so, you need to give notice to the other partners of your intention to dissolve the partnership pursuant to section 29 of the Act. If the partnership agreement is written, then the partner giving notice should provide written and signed notice. The partner may choose to determine the date of the dissolution in their notice. If no date is mentioned, the default date of dissolution is the date the partner communicates the notice pursuant to section 35(2) of the Act.
If your partnership agreement includes a provision granting you the right to terminate the partnership where you have reasonable cause to believe the partnership business is not being conducted in the best interests of the partnership, you may so terminate the partnership even if your belief is wrong. Moreover, if you seek to terminate the partnership because of suspicion of another partner’s, say, frequent intoxication or permanent lack of capacity, you can later justify the termination with facts learned after you gave the notice.
Dissolution
If your partnership dissolves, the partners will need to collect the assets and wind up the business of the firm. Pursuant to section 47 of the Act, this process usually involves selling/disposing of the partnership’s assets; paying off debts and liabilities and liquidation expenses; returning capital in accordance with capital contributions; distributing assets to the partners of record in proportion to their interests less those already distributed. After the partnership is dissolved, you may use the information gathered during your partnership in competition with the other partners as long as there is no agreement to the contrary.
If you seek to end your partnership and want to know more, book a free consultation with us.
