How to Exit a Business Partnership - Some Basics

Ending a business partnership can sometimes be as challenging as ending a marriage. Even when everyone wants to move on amicably, there are practical, legal and financial issues to address. A well-planned exit protects relationships, reputation, and the value built together.

Start with the Partnership Agreement

If you have a written partnership agreement, it should be your first point of reference. Most agreements include terms for:

• how a partner can retire or withdraw;

• notice requirements;

• how assets, profits and debts are divided; and

• what happens to clients, staff and ongoing work.

If you don’t have an agreement, the default rules under Queensland’s Partnership Act 1891 will apply, and those rules often don’t reflect what the partners intended.

Value the Business Fairly

Before anyone exits, the partners will usually benefit from understanding (and agreement if possible) on what the business is worth. That means understanding:

• the value of goodwill, equipment, and intellectual property;

• how any loans or liabilities will be dealt with; and

• whether a departing partner will be paid out or leave their capital in the business temporarily.

Getting an independent valuation or accountant’s advice can help resolve disputes later.

Deal with Clients, Contracts and Employees

A partner’s departure can affect customers, suppliers and staff. It’s important to clarify:

1. who will take over key client relationships;

2. how ongoing contracts will be fulfilled; and

3. whether employees’ roles or reporting lines will change.

Communicating clearly and early will help with a smoother and more professional transition.

Handle the Legal Steps

Exiting properly usually involves:

• updating the partnership register, ABN and any business name registrations;

• notifying the ATO and banks;

• transferring or assigning any leases, licences or permits; and

• documenting the exit formally with a Deed of Dissolution or Deed of Retirement.

If the business will continue with the remaining partners, they may also need a new partnership agreement.

Protect Your Future Interests

An exit doesn’t always end your exposure. You might still be liable for debts incurred while you were a partner, or for ongoing obligations under contracts signed before you left. You should also consider:

• a restraint of trade clause (to avoid future conflict); and

• clear releases and indemnities protecting both sides.

A commercial lawyer in Brisbane can help ensure these protections are properly drafted and enforceable.

Final Thoughts

Leaving a partnership is a major step, but with planning and clear documentation, it is likely to be less painful. The key is to address legal, financial and personal matters early, to minimise disputes.

If you’re considering exiting a business partnership, it’s worth getting tailored legal advice before acting.

Need Help Exiting a Partnership?

If you’re thinking about leaving your business partnership, or your partner is, get clear on your rights and obligations before you act.

Joe Kafrouni, a Queensland Law Society Accredited Specialist in Business Law based in Brisbane, is able to guide you through the process, protect your position, and prepare all the necessary documents for a smooth transition.

You can book an initial consultation with Joe Kafrouni directly below.

Disclaimer

The information provided by Kafrouni Law is intended to provide general information and is not legal advice or a substitute for it. Business people should always consult their own legal advisors to discuss their circumstances. Kafrouni Law makes no warranties or representations regarding the information and exclude any liability which may arise because of the use of this information.

Liability limited by a scheme approved under professional standards legislation.