Business partners tend to come and go, so it is important to know your rights when it is time to part ways. Here are some things to consider when your partnership is coming to an end.
If you and your business partner have a written partnership agreement, the partnership will end when the agreement has expired or you have taken the steps outlined in your agreement to end the partnership. If you do not have a written agreement, the Partnership Act (Ontario) states that the partnership is ended when you agreed it would end; or when one partner gives notice to the other(s) that it is ended; or if the partnership is for a single business purpose, when that business purpose has ended.
Generally speaking, the debts of the partnership will be paid, first to creditors and then to partners, and unless the partners have agreed otherwise, after returning the capital invested by the partners the remaining assets will be split among the partners according to their ability to share in the profits of the partnership. If there are more debts than assets, the debts will be shared among the partners in the same way as profits would be shared.
This happened to two partners who purchased a taxi plate together. Their written agreement stated that the partnership would end after five years. One partner gave notice that he was not going to renew, but the other partner did not want to end the business, and they both carried on. The exiting partner tried repeatedly to end the partnership, and after three years, stopped using the taxi plate. The other partner continued to use the taxi plate owned by the partnership for his own benefit, which led to the exiting partner suing. The court ordered the reluctant partner to share 50% of the profits made during the time he had sole use of the taxi plate, and ordered the plate sold and the proceeds equally divided between the two former partners.
If one partner won’t give up the partnership assets after the partnership has ended, they will have to share the profits made using the partnership property, and the property will still have to be divided among the partners.
This article is provided for informational purposes only and does not create a lawyer client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at your own risk. This article was originally posted on Clausehound.com, and was provided to us for repurposing. The original link can be found here.
Written By: Kathy Tomaszewski, Chief Knowledge Officer, Clausehound Inc.