2. Reasons for partnership dissolution
The partnership is no longer profitable
The partners disagree on how to run the partnership
and can no longer work together.
A partner has died, retired or been declared bankrupt.
Dissolution of partnerships
3. The partnership Act 1890: The partnership stops
trading at dissolution.
The assets are disposed of
The liabilities are paid to everyone other than the
partners
The dissolution process
4. The partners are repaid any investment above their
capital and current balances.
The current account balances are transferred to the
capital accounts.
The partners are paid any amounts due to them on
their capital accounts.
The dissolution process
5. Sold for cash
Sold to a limited company for shares, debentures or a
combination of cash, shares and debentures.
Taken over by an existing partner for an agreed value.
Cash is not paid under these circumstances, but
instead the partner’s capital account is charged
(debited) with the agreed value.
The disposal of assets
6. Used to calculate whether there has been a profit or a
loss on dissolution, which is then shared to the
partners’ capital accounts in their profit-sharing ratio.
The contents of a realisation account are as follows.
The realisation account
7. A simple example of a partnership dissolution
Illustration 1
8. A more complex example of a partnership dissolution
End of chapter questions pg. 171
Illustration 2
9. Things to Consider When Dissolving A Partnership
Credit: Entrepreneur.comAll of you entrepreneurs out there who are eternal optimists please standup. As you start
your business do you find yourself believing all the sales guys, trust every supplier and have a partner you would place
your life in his hands? Phew – be careful!
It’s funny because most partnerships don’t have written agreements in the event things go to hell in a hand basket.
Whether it is a limited partnership or a corporate with equal shareholders your life is in each other’s hands as long as
you are part of the business, and maybe longer.
Longer? Yes, if you dissolve your company many people forget todeactivate things that they have become liable for
including leases on office space and assets. The good thing about corporations is that they provide you with limited
liability meaning if the company goes broke creditors can’t come after you but many suppliers including leasing
companies require you to be personally liable too.
If you close your partnership/equal shareholder business you must follow certain guidelines in Canada (check the
variations in your country).
Close all your accounts including tax, sales tax, business number, payroll accounts
Have the directors agree to dissolve the corporation in the minutes of an AGM
Liquidate all assets
File the Articles of Dissolution with the government (it’s a form and is mandatory)
File a current year tax return
Notify creditors and settle any claims
Distribute any remaining assets to directors according to their share of the corporation.
I had a client who was aware the 3-person equal share corporation was closing but missed the compulsory board
meeting. The remaining partners provided him with an agenda, resolutions, a previous tax return all supposedly copied
to a lawyer. The problem is they kept operating the business. It appears they may not have really dissolved the
company. Shady to say the least! They could have, more easily, asked my client to resign and settle his share.
The problem in this scenario doesn’t end there because as the corporation really stayed in business at the same
location so did the lease to the office and the POS equipment. Even though he was not involved in the company he
was still liable for the lease if they decided to just walk away.
The bottom line is my client rightly approached me for advice and I have him several options. The dissolution of a
partnership can be relatively easy or extremely complex. You need legal help to navigate your way to a harmonious
end of your business.
http://www.garybizzo.com/dissolving-partnership/
Things to Consider When Dissolving
A Partnership
