What happens when a business partnership dissolves?

Many businesses will be started as a partnership between two individuals who share ownership of the enterprise. 

While this is a common form for new organisations to take, issues can arise if the partnership breaks down – leaving the business in a state of uncertainty until the question of ownership is resolved. This will commonly occur if the business is shared between a couple who are married or in a de facto relationship and who then separate, or if business partners choose to end their association with one another.

So what will happen to an enterprise when this relationship breaks down?

The first consideration will be what happens to the business and how it progresses in the future. For example, it might be possible for the existing structure to continue by taking on a new partner or partners.

On the other hand, the former partners might choose to disestablish the business completely or sell the enterprise to an interested buyer.

If the remaining owner looks to buy out the previous owner, they will need to provide an adequate price to acquire the former partner’s equity in the business.

It may also be necessary to change the legal structure of the business. This will depend on how the business is going to progress in the future. For example, if there is only one partner left and there are no employees, it may be appropriate to become a sole trader. A larger organisation on the other hand may benefit from becoming a registered company.

Partnership agreements and other commercial contracts will also need to be substantively revised as a business evolves, while larger changes to a company’s legal structure represent a more significant shift.

Regardless of which direction you are planning to take your business, it will be important to speak to a commercial lawyer to help navigate this process.