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Dissolving a Partnership

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A “Partnership” is an enterprise in which more than one person is involved with a common view of profit. The Partnership Act 1961 allows for not more than 20 persons to set up a partnership. This is usually called a “firm”.

 

Like a proprietorship, a partnership must be registered with the Registrar of Business under the Registration of Business Act 1956. It is advisable to formulate an agreement when forming a partnership so as to regulate the conduct and affairs of the partnership.

However, any changes pertaining to the partnership must be duly registered - a new business venture, a change of address, adding a new partner, an old partner leaving the partnership, etc.

Partners are entitled to enjoy the profits but are jointly and severally liable to pay and settle the debts and liabilities of the enterprise. Essentially, this means one, several or all of the partners are responsible to pay off the firm’s debts and liabilities.

Dissolving a partnership can be done by way of agreement, operation of law or in the event that any partner dies, resigns or becomes bankrupt. Unlike companies where the company is still “alive” even if all the Directors die, the Partnership shall too cease to exist if the partners die.

Partners are at liberty to fix the duration of the partnership. Where no fixed term has been agreed upon for the duration of the partnership, any partner may terminate the partnership at any time by giving notice of his intention to do so to all the other partners – Section 28(1) Partnership Act 1961.

There are six ways in which a partnership can be dissolved:

(i)  Expiration or Notice (Section 34 Partnership Act 1961) A partnership may be dissolved due to the following reasons under this section:

(a)     if entered into for a fixed term, when that term expires; or

(b)     if entered into for a single adventure or undertaking, when that adventure or undertaking ends; or

(c)     if entered into for an undefined time, by any partner giving notice of dissolution to the other or others of his intention to dissolve the partnership.

(ii)        Death, Bankruptcy or Charge (Section 35 Partnership Act 1961)

Every partnership will be dissolved if a partner dies or becomes a bankrupt. When it comes to charge, a Partnership may, at the option of the other partners, be dissolved if any partner suffers his share of the Partnership property to be charged under this Act for his separate debt.

(iii)       Dissolution by illegality of partnership. (Section 36 Partnership Act 1961)

A partnership may be dissolved if there is an event which makes it unlawful for the business of the firm to be carried on or for the members of the firm to carry it on in partnership.

(iv)     Dissolution by the court. (Section 37 Partnership Act 1961)

On application by a partner, the court may decree the partnership be dissolved in any of the following cases -

(a)        when a partner is found to be lunatic or of unsound mind or is shown to be as such to the satisfaction of the Court;

(b)        when one of the partners becomes permanently incapable of performing his part of the partnership contract;

(c)        when one of the partners conducts an unlawful business;

(d)        when one of the partners commits a breach of the partnership agreement;

(e)      when the business of the partnership can only be carried on at a loss; or

(f)       whenever in any case, circumstances have arisen which, in the opinion of the Court, render it just and equitable to dissolve the partnership.

The whole process of dissolving a partnership will only be completed when distribution of assets and final accounts has been settled.

 

 

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