How to Divide Assets of a Partnership

Mr and MS Smith Angelina Brad Pitt
Mr&Ms Smith

Not every joint business venture is a success. You may find yourself shouldering most of the workload, while your partner appears to have lost interest in the company and is rarely in the office. Or maybe you want to move the business in a different direction and this has led to frequent arguments.

Whatever the reason, once you’ve decided that dissolution of the partnership is the only way forward; the question of how the business assets should be divided must be answered. Parting a company is never easy, but it’s vital that you remain on civil terms with your business partner if negotiations are to proceed smoothly and a satisfactory outcome for both parties is to be reached. To ensure that the division process is conducted fairly and equivocally, it’s good policy to involve a neutral third party to oversee the whole thing. A lawyer with experience in business law is a wise choice for this role. Here’s how to go about dividing the assets of a business partnership.

1. Review The Partnership Agreement

It’s important to revisit your partnership agreement before you do anything else. Take a good look over the documentation making particular note of any terms and provisions that govern the dissolution of the partnership, or the removal of a partner from it. Generally speaking, a business partnership agreement gives legal entitlement to a, ‘fair and equitable share’ of the company’s assets. This means that if your business has three partners, each of those partners should receive a 33 per cent share of the business’ assets. Therefore, if one partner leaves, they would take 33 per cent of the assets, and the remaining two partners would then form a 50/50 share partnership agreement.

2. Consult Legal Statutes

If your business partnership agreement does not specify what action should be taken in the event of the partnership failing, consult the relevant legal statutes for further guidance. Under these circumstances your lawyer’s advice will be invaluable. The general rule is for an equal division of the business’ assets between the separating and remaining partners. If agreement cannot be reached amicably and a lawsuit results, a court will most likely divide the assets equitably.

3. Meet With Your Business Partner

Once you’ve explored all the possible separation options and are up to speed with the contents of your partnership agreement, schedule a meeting with your business partner to discuss matters. It’s best to do this on neutral territory and in the presence of your chosen third party. Explain your concerns clearly to your partner and stress that you are looking to draw matters to a mutually satisfactory conclusion amicably.

4. File Articles of Dissolution

If you and your partner cannot agree on a reworking of your general partnership agreement, you will have to file Articles of Dissolution with the relevant government department and notify the Inland Revenue. Any licences or permits which show your outgoing partner’s name as well as yours will have to be cancelled and reapplied for in the name(s) of the remaining partner(s) only.

5. Divide The Partnership Assets Equally

When the partnership has been dissolved, arrange for the division of any assets and liabilities equally between all the partners. Hopefully this will be an amicable process, but if you fail to agree on the logistics of the division, you will have to instruct your lawyer to file a civil suit. The court will then provide instruction as to the division of the liabilities and assets.

The division of assets of a business partnership is usually pretty straightforward in that an equal share among the partners is demanded by contract law. Keep communication channels open with your outgoing partner so that the matter can be drawn to an amicable conclusion, but be prepared for litigation if you can’t reach an agreement.