Partnerships and their dissolution

What is a partnership?

Partnerships are a common business structure.

A partnership will exist where two or more people or companies carry on business in common with a view to earning a profit.

No formal legal documentation or process is required to form a partnership.  A partnership can arise by conduct, even without any express oral or written agreement.

Formal documentation in the form of a legal Deed or Agreement of Partnership may be executed by the proposed partners to form a partnership.  The formal documentation of a partnership agreement is a prudent step, because it can clearly set out the partners rights and obligations in respect of the partnership and the business to be carried on by the partnership.  Depending on the complexity of the business enterprise and the relationship of the partners, the Partnership Agreement should deal with the following topics:

  • Name and address of the business and its purpose
  • Name and addresses of partners
  • Duties and responsibilities of each partner
  • The process for making decisions
  • The amount of money (capital) each partner will contribute
  • Bank accounts and accounting details
  • How profits and losses will be shared
  • The payment of drawings and wages to partners
  • Dispute resolution processes
  • How to dissolve the partnership, including valuing and distributing assets

Partnership dissolution

The dissolution of a partnership is the termination or coming to an end of a partnership.

Unraveling a partnership in the event of an irretrievable breakdown of the relationship between partners can be stressful, difficult, protracted and costly.

In Queensland the law in relation to partnerships is covered by common law (derived from decisions of the Courts), particularly contract law, and legislation, particularly the Partnership Act 1891 (Qld).

According to Common Law, under the Partnership Act, a partnership may be dissolved in a number of ways:

  • An agreed term of the partnership has expired
  • One partner gives written notice to the other partner/s to retire from the partnership
  • One or more partners becomes incapacitated
  • One of the partners dies
  • The Court makes an order dissolving the partnership
  • The partnership itself becomes subject to the appointment of a receiver

Most partnerships are dissolved when one partner decides or agrees to leave the partnership.  This should be done by written notice, otherwise a question may arise as to whether the retiring or outgoing partner will continue to be liable for the ongoing debts of the partnership.

Ideally, all issues regarding the dissolution of a partnership are dealt with in a formal Deed of Dissolution of Partnership.  It is important to note that all of the debts of the partnership must be paid from all of the assets and income of the partnership.  Any surplus assets are then distributed to the partners as set out in their partnership agreement or otherwise agreed in the Deed of Dissolution of Partnership.

A comprehensive Deed of Dissolution of Partnership should cover the following issues:

  • Reciting the dissolution
  • Conduct of the partnership between the dissolution date and the date of winding up
  • Sale, transfer or retention of partnership assets
  • How liabilities of the partnership are to be dealt with
  • Status of, and liability for, employees
  • Preparation of accounts
  • Payments to partners
  • Insurance
  • Indemnities and releases (eg in respect of guarantees)
  • Third party contracts
  • Confidentiality
  • Restraint of trade or non-competition.

If the partners cannot agree on those matters, then it might be necessary to apply to a Court for the partnership to be wound up and a receiver appointed to effect the winding up.  If this happens, it is always best to seek legal advice from a Lawyer before going to court.

If you are in a partnership but would like to better document or formalise the terms of the partnership, or are looking to exit or dissolve a partnership, get legal advice from one of our Lawyers at Preston Law.  Please do not hesitate to call us on 4052 0700 or email us at reception@prestonlaw.com.au.

Make an Enquiry

Call Us Now For An
Obligation Free Consultation