PM134200 - Partnerships - dissolution

A partnership is the relationship between a particular combination of persons. Any change in those persons terminates that partnership and may result in the creation of another partnership, but in some circumstances could also terminate the partnership and not create a new one. Whether a new partnership is created depends on the facts and is different in every instance.

Example 1

If a partnership is made of two partners, Simon and Barbara, and Barbara terminates the partnership to pursue a different career. Simon will then cease to be part of a partnership but instead another entity will form, such as a sole trader, based on the facts. Until another person joins Simon as a partner, the partnership is dissolved. A year later Brenda and Simon come together and form a partnership, but in the meantime no partnership existed.

Example 2

If a partnership is made of three partners, Simon, Barbara and Shelly. Barbara terminated the partnership to pursue a different career. When Barbara left the partnership it terminated, and the same day Simon and Shelly’s partnership was created. They are two different partnerships

A partnership may also be dissolved subject to an agreement among the partners, death or bankruptcy of a partner, the expiry of the venture it was formed to undertake, or by one partner giving notice to their fellow partners of their intention to dissolve it.

Legislation regarding dissolution of a partnership can be found from s32 -35 Partnership Act 1890.

When there is a change in a partnership, there is usually a change in the basis period of the firm. See guidance PM163100.