The dissolution of a Partnership

The end of a business partnership can come about whether partners intend it to or not.  In law, there are a number of events which can trigger a partnership’s dissolution.  Familiarity with these triggering events, and the rules that a dissolving partnership must adhere to, is essential knowledge for any partnership.

Under Nova Scotia’s Partnership Act, there are a number of events which will formally end a partnership.  For example, a partnership will typically end if one partner gives notice to the other(s) that they wish the partnership to end.  A partnership will also end if a partner dies, becomes bankrupt or insolvent, or charges their share of the partnership against personal debts.  If a partnership can no longer legally continue, the partnership must end.  These are just some of the events that may end a partnership; the Partnership Act should be reviewed for a more complete list of these events.

When a partnership has ended, the Partnership Act provides that all partners are entitled to their share of the partnership when they leave.  However, the business itself may not end, as one or more partners may want to continue operating the business.  If this occurs, the continuing partners must give the departing partner his or her share of the partnership.  Those involved in a partnership must be aware of this right to be bought out, as buying out a departing partner’s share can be financially difficult for a partnership, and can even prevent the business from continuing.

If none of the partners wish to or are able to continue the business, the partners can no longer take any actions in the name of the business, or on behalf of each other.  Only those actions which relate to winding up the partnership may be undertaken.  In addition to fulfilling any remaining responsibilities the business operation may have, winding up a partnership involves paying off the debts and liabilities of the partnership, and the distributing what is left of among the partners.  Under the Partnership Act, this process begins by identifying all partnership property and assets.  It is from these resources that the partnership’s debts and liabilities will be satisfied.  If there are any debts that remain unpaid after the partnership’s resources are depleted, each of the partners will be required to contribute equally to pay off those remaining debts.  Only after the partnership’s debts and liabilities are fully paid does the Partnership Act permit the partners to divide any remaining resources amongst themselves.

Once a partnership is wound up, the dissolution of a partnership should be registered under the Partnerships and Business Name Registration Act.  While not legally necessary, it is advisable to revoke a partnership’s name registration to ensure that the general public is informed that the partnership is no longer in operation and that the former partners are no longer associated with it.

This article is intended for information purposes and is not intended to be legal advice.  We suggest you contact a lawyer for advice on your particular business and circumstance.