How to Leave a Business Partnership in Australia: The Notice, the Debts and the ABN

To leave a business partnership in Australia, start with your partnership agreement: if it has an exit clause, give notice exactly as it says. If there is no agreement or no exit clause, and no fixed term, the Partnership Acts we read let a partner end the partnership by giving notice to all the other partners, from the date the notice names. Then deal with the debts, the tax registrations, and telling customers, suppliers and the bank.

Claim Done drafts a notice to your partners and proposed exit terms from your answers for a flat A$49. The exit terms set out who keeps what, the debts and your share, for discussion.

Step one: read your partnership agreement

According to business.gov.au, you check your partnership agreement for details about ending the partnership. If it has none, you either write a dissolution agreement or follow your State or Territory’s laws.

Look for:

• a clause about retiring, leaving or ending the partnership, and its number
• any notice period, and how notice must be given (in writing, by email, to an address)
• a fixed term, and when it ends

Never signed one? Our guide to partnerships with no agreement covers the default rules. This guide deals only with getting out.

No agreement or no exit clause: notice under the Partnership Act

In every Act we read, where no fixed term has been agreed, any partner may end the partnership by giving notice of their intention to all the other partners. Subject to any agreement between the partners, a partnership entered into for an undefined time is dissolved from the date the notice names as the date of dissolution or, if it names none, from when the notice is communicated (given, in the Northern Territory). A partnership for a fixed term ends when that term expires, again subject to any agreement between the partners. In Western Australia, the notice must be in writing.

New South Wales has the Partnership Act 1892; this table does not cover it, so check that Act on the NSW legislation website. NSW partners should read it on the NSW legislation website and check with NSW Fair Trading.

What the notice and the proposed exit terms should contain

A clear notice says:

1. who the partners are, and the business name, ABN and what it does
2. the basis for the notice: the clause of your agreement, quoted with its number, or the Partnership Act where there is no clause and no fixed term
3. the date the partnership ends, or you leave, allowing any notice period
4. that until that date you will keep acting in good faith, and ask that no new debt or commitment outside the ordinary course of the business be taken on in the partnership’s name without everyone’s written agreement
5. that proposed exit terms are enclosed for discussion
6. a date to reply by

The proposed exit terms cover what business.gov.au lists for a dissolution agreement: the end date, assets and debts, final finances, clients, contracts and employees, and the business name. They bind no one until all the partners sign a written agreement.

The structure of the two documents

Notice to Partners

• Heading: notice of dissolution, or notice of retirement under your agreement
• Numbered paragraphs: the partnership, the notice and its date, a short reason if you want one, conduct until the date, the enclosed terms, the reply date
• Your signature

Proposed Exit Terms

• The end date, and whether the others carry on or the business is wound up
• Assets: a table of each asset and who it goes to
• Debts and liabilities: a table of each debt and how it is paid or taken over
• My share: the amount and dates you propose, or a valuation or sale
• Final accounts, then clients, contracts and staff, and the business name
• Bank account and registrations, telling customers and suppliers, and the next step

How to give the notice and what to keep

Give the notice to every other partner, in the way your agreement requires. A notice with no date takes effect when it is communicated, so name the date and keep proof of when each partner received it, such as the sent email. Keep copies of the agreement, the notice and every reply.

Debts you incurred before you leave

Leaving does not, on its own, end your liability for the old debts. In each Act we read, a partner who retires does not, by retiring alone, stop being liable for partnership debts and obligations incurred before retirement (for example s 20(3) in Queensland). In Queensland, Victoria and South Australia, a retiring partner can be released by an agreement between that partner, the continuing partners and the creditors. List each loan, lease and supplier account in your exit terms, and ask each lender for any release together.

Telling customers, suppliers and the bank

Under every Act we read, a person who deals with the firm after a change may treat the old partners as still being partners until they have notice of the change. So tell people in writing. business.gov.au’s closing a business guide suggests telling customers by email, letter, website or in person; telling suppliers and paying what is owed; and closing business bank accounts. Check your State’s public notice rule in the table.

Tax, ABN, GST and the business name

The ATO’s page on changing the makeup of a partnership says that when a partner retires, the partnership is dissolved and a new partnership is formed, which needs a new TFN and ABN. The old partnership lodges a return to the date of dissolution. After only a technical dissolution, it may continue as a reconstituted partnership with the same TFN and ABN; to keep using the TFN, the ATO must be told within 28 days.

If the business stops trading altogether, business.gov.au says GST registration must be cancelled within 21 days of stopping business activities, and the ABN within 28 days, after final lodgements and payments. The ATO says a partnership that has stopped trading and distributed its assets answers YES at Final tax return. If the others carry on, business.gov.au’s change of ownership page says to remove leaving partners from the business name register. Ask the partnership’s accountant about the tax effect on you.

Mistakes to avoid

• Giving notice under the Act when your agreement has its own exit clause or a fixed term that has not ended.
• Telling only one partner. The notice goes to all of them.
• Leaving the date out, or setting one shorter than your agreement’s notice period.
• Assuming the bank and suppliers know you have gone.
• Treating the exit terms as settled before everyone has signed.

Ready to give notice? Answer the questions and Claim Done drafts your partner exit notice and proposed exit terms for A$49, ready to check, sign and give to each partner.