10.6 Dissolution of partnerships and its consequences

Unless an agreement states otherwise, most partnership laws allow partnerships to dissolve when specific events have occurred. These events can include the following circumstances:

• Death of a partner
• Bankruptcy or expulsion of a partner
• Decree of dissolution from the court
• Impossibility to conduct business

Consequences of dissolution

1. End of business operations: The partnership’s business activities come to an end, and the partners are no longer engaged in joint business activities under the partnership’s name.
2. Liquidation of assets: The partnership’s assets are sold or distributed among the partners as part of the winding-up process. Any remaining cash or property is divided according to the partnership agreement.
3. Distribution of profits and losses: Partners receive their share of the partnership’s profits or losses as part of the distribution of assets.
4. Debt settlement: The partnership must settle all outstanding debts and liabilities, which may include loans, vendor payments, and other obligations.
5. Tax consequences: The dissolution of the partnership can have tax implications for the partners. Partners may need to report gains or losses on their individual tax returns, and the partnership itself may need to file final tax returns.
6. Liability of partners: Partners may continue to have liability for partnership obligations that were not fully satisfied during the winding-up process. This can include the risk of being sued for unpaid debts or obligations.