Ending an ordinary partnership
An ordinary partnership can be dissolved by any of the partners at any time and the process doesn’t require all the partners to agree. Notice of termination can be served by one or more partners or a simple agreement can be reached. A Dissolution of partnership deed can be used to properly wind up the partnership and divide any assets or liabilities - this also applies to LLPs and limited partnerships (see below). Partners must publicise the dissolution. This can be done by writing to any relevant parties (eg customers or suppliers) and advertising in the relevant Gazette.
Automatic dissolution takes place if:
- a partnership was formed for a specific term or project which has concluded
- one or more partners dies or goes bankrupt
- it becomes illegal to carry on the business of the partnership
In certain cases, a partnership can be dissolved by court order (eg if one partner successfully complains that another partner is incapable of performing their part of the partnership contract).
In a general partnership, when a partner decides to leave, the partnership is also dissolved. If you want to carry on the business partnership, you will need to have someone replace the departing partner and buy their share of the business. The very nature of a partnership is that it must consist of two or more partners.
Alternatively, partners who desire to remain in business after a partner leaves can establish buy-sell agreements when first forming the partnership. A buy-sell agreement allows the remaining partners to buy the ownership rights of the departing partner. A buy-sell agreement serves as a binding contract that details the conditions regarding when a partner leaves the partnership. Buy-sell agreements may include information concerning the price to pay when a partner is bought out, who is able to buy the partner’s ownership rights and which events can result in a buyout. A buy-sell agreement is advantageous for a company because it allows the partners to possibly keep the business afloat while experiencing a critical transition. The agreement is binding, so it can serve as evidence if partners find themselves in court because of legal issues regarding the partnership.
If you want to void the partnership agreement, this will also dissolve the business. Therefore it's not recommended to do this if you want to carry on the business.
Ending a limited liability partnership (LLP)
In order to end an LLP, an application must be made to the Registrar to be struck off the register. This can be done in the absence of any insolvency issues, unless if, at any time in the last 3 months, the LLP has:
- traded or done any business
- changed its name
- sold anything which it would have normally sold in the course of doing business
- engaged in any other activity whose purpose was not to implement the striking off, conclude affairs or comply with any statutory requirements.
Form LL DS01 should be signed and dated by the majority of members (or both members if there are only two) and submitted along with the appropriate fee (see Companies House website for the latest fee).
Any relevant LLP parties including members, employees, creditors and employee pension fund trustees should be notified of the application within 7 days of sending the application to the registrar.
Upon receipt of the application form, the registrar will publish notice of the proposed striking off in the relevant Gazette and, in the absence of objections, will strike off the LLP not less than 3 months after the date of the notice. Dissolution will take effect upon publication of a notice to this effect in the Gazette.
Ending a limited partnership
The rules are similar to ending an ordinary partnership but only general partners can decide to dissolve a limited partnership - limited partners are not entitled to dissolve the partnership by notice.
The death or bankruptcy of a limited partner is not a ground for dissolution.
There is no requirement to notify Companies House of the dissolution of a limited partnership. The general partners can send notification of dissolution using Form LP6 which will be accepted in good faith. However, the limited partnership name will remain on the live index of names.