Why partnerships end
business.gov.au lists these reasons a partnership can end:
- “the agreed partnership term finishes”;
- “a partner gives written notice to leave”;
- “a partner can no longer legally run a business”;
- “a court orders the partnership to end”;
- “a partner becomes bankrupt”;
- “a partner dies”;
- “the business is insolvent”.
It matters who carries the debts on the way out. In a general partnership, the most common type, business.gov.au says each partner has unlimited liability for the partnership’s debts and obligations. Where a partnership cannot pay its debts, business.gov.au says to speak to an accountant, insolvency practitioner or lawyer about the options immediately.
Start with the partnership agreement
A partnership agreement, if the partners made one, sets out the terms of the partnership; business.gov.au suggests checking it for how the partnership ends. If it says nothing about ending, the partners either write a dissolution agreement or follow their state or territory’s law.
What a dissolution agreement covers
business.gov.au suggests considering a dissolution of partnership agreement even where there is a partnership agreement. It describes it as a formal contract covering:
- why the partnership is ending;
- the date it will end;
- how assets and debts will be divided;
- a final summary of the business’s finances;
- who will deal with any business tasks still to be done;
- how clients, contracts and employees will be handled;
- who will own any intellectual property and the business name, if there is one.
The Act in each state and territory
Each state and territory has its own partnership Act, which must be followed where there is no written partnership or dissolution agreement, or where the agreement does not cover something the Act requires.
| State or territory | Act |
|---|---|
| Australian Capital Territory | Partnership Act 1963 |
| New South Wales | Partnership Act 1892 |
| Northern Territory | Partnership Act 1997 |
| Queensland | Partnership Act 1891 |
| South Australia | Partnership Act 1891 |
| Tasmania | Partnership Act 1891 |
| Victoria | Partnership Act 1958 |
| Western Australia | Partnership Act 1895 |
Each state and territory may also have extra rules. business.gov.au gives the example of publishing a notice in a government gazette or newspaper telling people the partnership is dissolving, and suggests checking with the state or territory government business authority.
One state’s steps: Western Australia
Rules differ by state, so this is one state’s guidance only, from WA’s Small Business Development Corporation. It describes these steps where a partner resigns from a partnership set up for an indefinite time:
In WA, according to the SBDC
- A partner may resign or retire at any time by written notice to the other partners, which triggers the dissolution.
- Place a notice of the dissolution in both the Government Gazette and a local paper. According to the SBDC, this shields the partner who is leaving from creditors who deal with the remaining partners after the date of the notice.
- Use ASIC Connect to update the partners on a registered business name that is being kept, or to cancel it if the partnership stops trading.
- Pay the debts and distribute the assets. Unless the partnership agreement says otherwise, the SBDC says all partners are entitled to an equal share of the assets and profits and must contribute equally to losses.
The SBDC also suggests legal advice before deciding to end a partnership, especially where there is any element of dispute.
A new partnership, or the same one?
The ATO says that when the makeup of a partnership changes, such as when a partner retires or dies or a new partner joins, the partnership is dissolved and a new one is formed. Where the change is only a technical dissolution, the partnership may be able to continue as a reconstituted partnership.
A new partnership
Needs a new tax file number and ABN. The old partnership lodges a tax return from the start of the income year to the date it dissolved; the new one lodges from the date it formed to the end of the year.
A reconstituted partnership
A technical dissolution is one where the continuing partners take over the assets and liabilities and the business carries on without any apparent break. The reconstituted partnership needs no new TFN, ABN or GST registration, and lodges one tax return for the full year. To apply to keep using the partnership’s TFN, the ATO must be told within 28 days of the change.
The ATO says a GST registration must be cancelled within 21 days of selling or closing the business, or of changing the business structure, which “includes changing from a partnership to a company, unless the old business carries on another business”. The rest of the order is in closing your ABN and GST.