If you have a partnership with one or more other partners, it is best to be prepared for a situation where a partner or multiple partners want to leave the partnership.
Partnership overview
A partnership can constitute two or more parties. Partnerships are governed by the relevant partnership legislation in the state or territory where the partnership operates, and may also be governed by a Partnership Agreement.
A well-drafted Partnership Agreement outlines the process to follow if a business partner would like to leave.
Many partnerships may not have a formal agreement drafted. If this were the case, it would be necessary for the partners to adhere to the partnership legislation in their state or territory. Legislation usually requires a written notice from the departing business partner.
Partnership Legislation and Agreement
Once a business partner leaves, the partnership may be considered dissolved or technically dissolved.
If a partnership is technically dissolved, the business can continue operating as a reconstituted partnership. Technical dissolution can arise when the existing and new partner(s) take over the assets and liabilities of the partnership with no apparent break to the running of the business. Technical dissolution may require:
- at least one partner remain a party to the partnership before and after one partner has left;
- there is no period where there is only one partner.
It is common for a Partnership Agreement to include an express or implied continuity clause. Technical dissolution means that the business can continue running without the need for a new Australian Business Number (ABN).
If the departure of a business partner amounted to a dissolution, the business would need to follow the procedure in the Partnership Agreement or legislation to appropriately dissolve the partnership. A Deed of Dissolution is often drafted to outline the agreed terms of the dissolution.
Partnership Exit Agreement
It is prudent to have a Partnership Exit Agreement for the exiting partner. This can address any pay-out, confidentiality, protecting intellectual property, and a non-compete clause so that the departing partner does not set up a competing business.
Conclusion
At LegalVision we have specialist partnership lawyers who can assist in drafting the appropriate agreements for your partnership or partnership exit.
Please call our office on 1300 544 755. We will happily provide you with a fixed-fee quote and an obligation-free consultation