Dissolution of a Partnership

Dissolving a business partnership can be complex, particularly where the partners are in dispute. We guide you through the process, helping protect your interests and preserve business value.

We mainly advise professional service partnerships, including solicitors, doctors, dentists, vets, healthcare providers, architects, accountants and surveyors. We can also assist with other types of business partnership termination. Where appropriate, we act on a neutral basis to help partners identify practical legal and tax solutions.

Where relationships have broken down or a partner needs independent advice, we focus on practical solutions that avoid costly litigation wherever possible.

How to dissolve a partnership

There are five main ways a partnership may be dissolved:

• Termination by agreement: The partnership agreement may set out how dissolution can be agreed, including any voting requirements. If no relevant provision applies, the partners’ agreement may be required under the applicable law.
• Dissolution by notice: A partnership at will can generally be dissolved by a partner giving notice. However, whether a partnership is genuinely at will depends on the circumstances and any agreement between the partners.
• Expiry: A partnership established for a fixed period or particular project may dissolve when that period expires or the project ends, depending on its terms.
• Death or bankruptcy: Under the default rules, the death or bankruptcy of a partner may dissolve a partnership unless the agreement provides otherwise. The position differs for limited liability partnerships (LLPs).
• Court order: A court may order dissolution on specified grounds, including persistent breaches of the partnership agreement, conduct prejudicial to the business, a partner’s incapacity or where it is just and equitable to dissolve the partnership.

The appropriate route depends on the partnership structure, the agreement and the circumstances.

Partnership dissolution negotiations

Negotiation can often provide a more flexible and cost-effective alternative to court proceedings. An agreed exit may help partners:

• Save time and legal costs;
• Preserve business value;
• Maintain professional relationships where possible; and
• Reach a solution tailored to their circumstances.

Mediation can also help resolve disagreements and facilitate an orderly separation.

Partnership dissolution agreement

A formal dissolution agreement can document the arrangements and reduce the risk of future disputes. Key issues may include:

• Responsibility for existing, future and contingent liabilities;
• Allocation of the business name, clients and work in progress;
• Ownership and use of intellectual property;
• Distribution of assets, including stock and client records;
• Final accounts, tax liabilities and retention of records;
• Statutory and professional obligations;
• Professional indemnity insurance, including run-off cover where appropriate; and
• Restrictive covenants and other post-termination obligations.

If the partnership is insolvent, specialist insolvency advice may be required to determine the appropriate process.

We advise on dissolution negotiations and can draft or review a dissolution agreement, including where an individual partner has been presented with terms to consider.

Removing a partner instead of dissolving

Removing a partner can be difficult. An expulsion may be possible where the partnership agreement expressly provides for it and the relevant requirements are met.

Without an effective expulsion provision, the remaining partners may need to negotiate the partner’s departure, dissolve and re-form the partnership, or consider restructuring as an LLP or limited company. The appropriate option will depend on the circumstances and the legal and commercial consequences.

Partnership termination advice

We advise on partnership disputes and termination, helping partners identify practical solutions that protect their interests and preserve value where possible. Contact us to discuss your circumstances and how we can help.