Dissolving a partnership? Some important things to know
We commonly provide advice to individuals operating small to medium sized businesses in partnership with others. It is inevitable that business partners will come to some disagreement and as a result, they may decide to go their separate ways and finalise their business relationship.
We have seen some recent examples of “what not to do” when finalising a partnership. An important point to remember is that all partners may be liable for any debts or liabilities incurred by the business and/or their fellow partners.
If the partnership is to be finalised, then appropriate measures should be taken to ensure all matters are dealt with and each party can walk away knowing their respective positions.
Two recent cases spring to mind. In the first example, a partnership was dissolved without a comprehensive agreement signed by the parties. This meant the party continuing to operate the business, which was operated by the partnership, was stuck with liabilities incurred by the partnership before the date it was dissolved.
The remaining partner was upset. The responsibility for the liabilities fell at his feet when he believed all partners were liable for the liabilities in question. While the partners executed an agreement, the agreement was deficient and did not properly detail the wishes of all partners.
The second example involved the outgoing partner being pursued by the Australian Taxation Office (ATO). The ATO sought to recover a substantial debt against the outgoing partner arising from a debt incurred after the date that the partnership ceased to exist.
We were able to assist our client by relying on the very specific terms of an agreement we had drafted and which the partners signed, which specifically dealt with debts of the partnership.
The result was we were able to save our client tens of thousands of dollars in liability to the ATO, simply because we had a comprehensive agreement on which we would rely.
Both cases highlight the need to see us and obtain an appropriate agreement if you are ending a relationship with a business partner.