Termination of the Business
| Author | Elspeth Berry |
| Pages | 145-155 |
Chapter 11
Termination of the Business
11.1 GENERAL PARTNERSHIPS
11.1.1 Dissolution
Dissolution marks the legal end of a partnership. If the business is genuinely to come to an end or to be sold to a third party (sometimes referred to as a total dissolution), the assets will be collected, the debts paid and any surplus distributed to the partners. Alternatively, it may be that one or more of the partners are to continue the business (sometimes referred to as a partial or technical dissolution). In this case the continuing partner(s) will buy out those who are leaving, and carry on the same business as a sole trader or partnership.
A partnership may be dissolved in a number of ways.
11.1.2 Non-judicial grounds for dissolution
Subject to contrary agreement, a partnership is dissolved without the involvement of the court in the following situations (ss 32–34 of the Partnership Act).
Partnership ‘at will’
If no contrary agreement as to duration has been reached, the partnership is ‘at will’ (s 26(1) of the Partnership Act). This means that it continues indefinitely, and any partner may dissolve the partnership by giving notice to all other partners (ss 26(1) and 32; see also 9.1.5). It is advisable for the notice to be in writing so as to reduce the possibility of future disputes as to whether it was properly given. Although it is possible to include in the partnership
146 Partnership and LLP Law
agreement a provision specifying a notice period, so that the dissolution cannot occur without prior warning, a partnership which has a comprehensive agreement is more likely to provide that notice of departure does not trigger dissolution.
Fixed term or purpose
If the partnership is formed for a fixed period of time or purpose, it will dissolve automatically at the end of the specified period or purpose unless the partnership is, in fact, continued (s 32 of the Partnership Act). In the latter case, the partnership will be governed by the old terms, unless new terms are agreed (s 27), and if no new agreement as to duration is reached, it will be a partnership at will (see above). In Chahal v Mahal and Deol
Other events
The death or bankruptcy of a partner will automatically dissolve the partnership in the absence of contrary agreement (s 33(1) of the Partnership Act).
A partnership may be dissolved, at the option of the other partners, if a partner’s share is charged to pay a private debt (s 33(2) of the Partnership Act).
Illegality, whether of the business or the partnership, will result in dissolution (s 34 of the Partnership Act). This may not be varied by agreement. It may be that the business is unlawful, or that it was formed illegally. In Everet v Williams,
Similarly, in Stevens and another v Bower,
However, a partnership will not dissolve merely because the business could be carried on illegally. In Dungate v Lee,
In Hurst v Bryk
11.1.3 Judicial grounds for dissolution
Given the extensive grounds for dissolution without court involvement, judicial dissolution is rarely necessary. However, it may be required if one or more partners (but not all, since the partners acting unanimously could simply alter the agreement) wish to dissolve a partnership for a fixed purpose or term, or a partnership at will with an agreed notice period, before the purpose is achieved or the term or notice period has expired.
The grounds on which the court may dissolve a...
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