Like any other legal arrangement – partnerships may come to an end.
For business, legal or personal reasons – people and businesses change over years and one of you might want to do something else.
Fortunately, there are easy ways to dissolve a partnership just like any other legal business entity.
There are two main methods for dissolving a partnership in the UK:
- General dissolution – If the business isn’t viable and you want to close it entirely then a general dissolution could be the best option.
In a general dissolution the partnership is treated like any other business so the method used to close it varies depending on the solvency of the company.
If it’s solvent then a Members’ Voluntary Liquidation (MVL) or Dissolution would be the preferred route.
If it’s insolvent then a Creditors Voluntary Liquidation (CVL) would be optimal although other methods exist.
All partners must be in agreement before a partnership can be dissolved.
- Technical dissolution – a partnership specific method which allows one partner to extract their share of the business in cash while leaving a viable business to continue trading without them.
This only applies if a partner leaves or joins – if there’s a change in the composition of the firm. It’s only a technical dissolution because there is no break in the ongoing business of the partnership.
It’s kike a software upgrade from V1 to V2 – any new partnership takes on the existing assets and liabilities of the old one and keeps going.
While dissolving a partnership can be complicated depending on other factors involved, the easiest way to tackle it is to get in touch so we can help you plan your way.
There might be a thousand causes of an unpaid debt or broken promises that it would be paid and hasn’t been.
Ultimately - when a creditor or other party decides to issue a Winding-Up Petition, it’s their final way of saying “enough is enough.”
Sometimes this will be the latest stage of legal action - after they’ve already issued a Statutory Demand or obtained a court judgement. If that’s the case then these other measures will be judged as sufficient evidence by the court that the company can’t pay its debts and the Winding-Up Order will be granted.
In rare cases directors can apply to have their own company forcibly wound up if they have debts greater than £750 that cannot be repaid.
Shareholders must agree and the case must be made to a judge as to why the company has to be liquidated in this manner. If some shareholders dissent on this approach, directors may still proceed but they have to be in complete agreement.
Occasionally, a director that has fallen out with their colleagues may want to liquidate the company themselves but they will only be allowed to pursue a Winding-Up Petition if they are both a shareholder and a creditor.
Another form of Solvent Liquidation is Dissolution or Striking Off. Companies can only complete this under a certain set of circumstances.
The business must have ceased all activity including trading for a total of three consecutive months and no longer hold any assets.
It should also have cleared all of its debt. A director looking to dissolve their business with some debt outstanding could find themselves being held personally liable for it and subject to potentially considerable costs if the company has to be resurrected to pay them off.
Dissolution itself is a relatively simple, inexpensive and straightforward matter as it entails completing some correspondence at Companies House.
The process takes approx. three months but includes a statutory two months notice period given at Companies House.
- No creditors meetings, directors reports compiled or additional bureaucracy
- All creditors are paid their money in full
- Remaining assets can be transferred directly to directors or shareholders
- Any existing contracts or finance agreements remain in place
- Various stakeholders can apply to resurrect the company if correct procedure isn’t followed; the company has been active and trading in the three months prior to dissolution and if any directors have committed fraud
- Directors could be held personally liable for any of the company’s outstanding debts or liabilities
A CVA would allow the company to continue trading and repay creditors from profits over an extended period of time. CVAs usually provide creditors with a better return than a compulsory liquidation so they would be naturally more receptive to the idea of receiving more of their money.
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