There are many reasons why partnership can be dissolved and chief amongst them is disagreement between the partners. Other reasons are decline in profit, accumulation of debt, loss of interest in the business, the death of a partner or bankruptcy, a court-order dissolution due to incapacity or unsoundness of mind in one of the partners and of course the court deeming the partnership to be illegal.
The bottom line is that dissolving a partnership is an official process of permanently closing your business cum partnership. Even though filing the dissolution documentation with the government of Australia is certainly an important part of the process, it is not the only step.
You are expected to also liquidate your business assets, settle any liabilities, and send legal notifications to anyone that had an interest in your company. You should note that failing to complete these steps might entail you as a part business owner being held personally liable for any outstanding debts or liabilities of your partnership business.
Please note that in Australia in the absence of a valid partnership agreement, or if the agreement is silent on dissolution, the governing legislation applies on the partnership. In that case, the legislation of the state where the partnership was formed and operates in applies:
- NSW – Partnership Act 1892 No 12
- ACT – Partnership Act 1963
- VIC – Partnership Act 1958
- WA – Partnership Act 1895
- NT – Partnership Act 1997
- QLD – Partnership Act 1891
- SA – Partnership Act 1891
- TAS – Partnership Act 1891
According to s 32, partners may dissolve a partnership:
- By the term of the partnership expiring; or
- If the time is undefined, then by one partner serving a notice of their intention to dissolve the partnership to the other partner(s).
The partner must provide the notice in writing and the partnership will dissolve from the date specified on the notice. If no date is mentioned, the dissolution will take place from the date of communication of the notice. Additionally, in some cases, the court may give an order to dissolve the partnership.
Having said that, here are some of the detailed steps you should follow if you want to dissolve your partnership business without an agreement in Australia.
Have it in mind that a partnership (limited partnerships or general partnerships) with or without agreement in Australia is both established and dissolved by filing articles of organization or dissolution, respectively, with the Secretary of State.
How to Dissolve a Partnership Without an Agreement in 4 Steps
Table of Content
Meeting of the Partners Involved
When looking to dissolve a partnership in Australia, the very first step is to consult the articles of organization and any written document that shows that you are in partnership. Note that the dissolution is expected to comply with the terms of the articles of organization or any written document that shows that you are in partnership. If dissolution is not covered in either of these documents, state law applies by default and a meeting of the partners is called.
Nonetheless, a resolution to dissolve the partnership must be adopted by the partners if a previous agreement wasn’t covered. The law in Australia requires all partners to agree to the dissolution in writing if neither the articles of organization nor any written document that shows that you are in partnership detail a method for dissolution.
Articles of Dissolution
Once all the partners have reached a consensus to dissolve the partnership by the method described in the articles of organization or the operating agreement or by unanimous consent, articles of dissolution must be filed with the Secretary of State.
Note that articles of dissolution tend to include the name of the partnership (limited partnership or general partnership), the date of the filing of the articles of organization and any amendments, the legal basis for filing articles of dissolution (for example, written agreement by all of the partners), and the effective date of the dissolution of the partnership. Also note that the government of Australia has an Articles of Dissolution form to download and execute. The filing fee for the articles of dissolution must be paid to be processed.
Winding Up the Partnership
This is simply the process of resolving the final matters of the partnership. After the partners vote to dissolve the partnership, it continues to exist to allow time for winding up the company. Usually, the partnership will designate one of the partners to handle the winding up. Under Australia’s partnership Act, key winding up tasks include:
- Collecting partnership assets
- Disposing of partnership property that will not be distributed in kind to members
- Discharging or making provision to discharge partnership liabilities; and
- Distributing any remaining assets to partnership partners.
However, when it comes to the last two listed items, discharging liabilities and making distributions to members, you are expected to make payments in a particular order. First, you must pay creditors, including partnership members who are creditors, to the extent permitted by law.
It is very crucial that you pay all outstanding taxes. After that, unless your formational documents provide otherwise, you should make distributions to current and former partners based, for example, on withdrawal from the company or on previous agreement of company managers.
Finally, note that any assets remaining is expected to be distributed amongst members based on the terms of your articles of organization or any written document that shows that you are in partnership, or else proportionally based on each member’s contributions to the company after adjustments.
Provide Notice of Dissolution
Note that a notice of the dissolution of the partnership must be provided to known creditors of the partnership. This notice is expected to state a claim of any money owed, supplies a mailing address where claims are to be sent, and provides a deadline at least 120 days from the date of the written notice.
The notice must also state that any claims not received by the deadline are barred pursuant to Australia law. In addition, the notice of dissolution of the partnership is expected to be published in a newspaper, along with the request that parties with a claim against the partnership make those claims in accordance with the notice.
Note that this notice must be published once in the county where the partnership’s primary office was located and it must, in very extensive details, explain how to make a claim and provide a mailing address where the claim is to be sent. The notice must also state that any claims made against the partnership will be barred unless brought within five years of the publication of the notice.
Whether you are dissolving a domestic or foreign partnership, the process is not complicated. The dissolution process is quite similar for foreign and domestic partnership dissolution in Australia. You will simply need to file the form that corresponds to your business type.
However, note that taking the time to properly dissolve a partnership by having the correct agreements in place resolves any potential issues, including remaining property, and limits the ability of creditors to make claims against partners for debts of the partnership in the future.
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