Except perhaps by the lead character of a Bram Stoker novel (who was, admittedly, a solicitor!), it is unlikely any of us would agree to meet for coffee and proceed to cut open and casually remove a tumour from the other's brain, unless your friend is a neuro-surgeon and the Starbucks just happens to have an operating room.

Errors or omissions at the time of ousting a partner can not only cost thousands of dollars in lawyer and court costs, but the baby may be thrown out with the bath water.

Ending a partnership should not be done by dabblers in law. It requires a legal neuro-solicitor. It is complicated business where an error on a point of detail can be fatal to the partnership or result in substantial losses to the partner being ousted, or to those doing the ousting.

Most partnerships live and die by the terms of their constitutive contract, the partnership agreements.  A good partnership agreement is unique in law as it, by definition, give birth to, and pre-arranges the funeral of the business. These contracts, if drafted by a wise lawyer, will anticipate the funeral arrangements and estate distribution of the partnership, as well as the ousting of a partner.

The legal principle behind partner ousting or partnership dissolution cases is the right of a departing partner to a return of his contributions, subject to his share of partnership liabilities.

The dissolution of any partnership usually ends with a formal notice by one of the partners but it can ended by the occurrence of other events, not all depending on the volition of a partner.

Be careful: a notice to dissolve cannot be taken back except with the consent of the partner who received it.

Got A Death/Dissolution Clause?

If the partnership has an agreement, it may well have a dissolution clause, as well as an ousting clause, the latter to oust one or more of the partners without killing the partnership,  to allow the partnership to continue thereafter, albeit short an undesired partner or two!

Often, the preferred mechanics of a partnership divorce depends on who initiates. In most scenarios, it is either a partner who wants out, or a group of partners who seek to oust.

Where a partner wants out, many partnership agreements contain a right of first refusal clause, which requires the departing partner to so advise his or her partners of his or her intent to sell his or her full share, and to offer that share at a stated price. This often raises the sticky issue of worth or valuation (see Valuation of a Business or Partnership). The remaining partners then have a protected period of time to accept or reject the offer; for example, 60 days.

Obviously, a partnership of dentists will not want Uncle Harry, the chimney sweeper as a partner which explains why many partnership agreements for professionals such as accountants, lawyers and architects, will pre-qualify only those third-parties who are members of a stated professional association. Even if it does not, the legal principle of intuitu personae may apply.

What often happens in real life is that one or more of the partners who seek to oust, or seek to leave themselves, will present to the remaining partners, or to the partner to-be-ousted, as the case may be, a new contract which proposes terms of the separation which differs from the terms of the partnership agreement. This is fine as long as it is endorsed by all parties; parties are always allowed to change their previous contract by a subsequent contract provided only that all parties to the original agreement also endorse the amendment. If any proposed separation agreement fails to attract the signature of one or more of the original partners, then it is not worth the paper it is written on - all the parties must fall-back on the terms of the original agreement.

In this way, playing one contract against another, the cat and mouse game is played-out.

For example, ousting partners will couch terms in a proposed separation agreement which purport to extend to the ousted partner new terms more favourable than what might be the case were the ousting determined by the terms of the original partnership agreement. By this, they propose to pay for expediency; to get the job done cleanly and to minimize the inevitable harm done to the business by a messy partner divorce.

Every once in a while, a partnership agreement will not provide a clear answer to a proposed dissolution or ouster and in these cases, the courts are available to interpret the contract, albeit an expensive proposition (see, for example, Litwiniuk).

Got No Death/Dissolution Clause?

Some very successful partnerships either have no partnership agreement or that agreement has no termination or ousting provisions. In either case, the participants face the unenviable prospect of resolving their dispute by reference to a dry and faceless partnership statute or, worse, the bottomless, dark pit of common law, just what you need when your partnership is being shook by an earthquake.

Justice Darling stated in Moss, the general partnership statute in a any jurisdiction has no application if the partnership contract speaks to the dispute; the statute:

"... refers only to cases where the partnership agreement is silent as to the duration of the partnership; that it is not meant to nullify any provision which the parties have chosen to make as to the duration of the partnership, but only to take effect where they have made no such provision at all."

Because the general law on partnership varies, sometime slightly, sometimes substantially, from jurisdiction to jurisdiction, it can be challenging to boldly state principles of partnership law.

Nevertheless, subject to the provisions of partnership laws in your jurisdiction, death or insolvency of a partner is often cause for ousting or, if there are only two partners, the dissolution of the partnership.

Some partnership agreements fix the date of dissolution right in the agreement; that the partnership shall be dissolved as of such and such a date. But because so much of partnership law is premised on the actions of the partners, any de facto continuation of a partnership past a stated expiry date will typically have the legal effect of continuing the terms of the partnership agreement as if no expiry date had been so provided.Earthquake street crack

Some jurisdictions require that all limited partnership state, on the public government records, the term of existence. This is especially true of limited partnership for which the government sets stringent transparency requirements.

All jurisdictions provide some form of codified law in regards to the dissolution of a partnership, and most, like §32-44 of Ontario's Partnership Act (as of 2009), qualify the general statement of law, that the statute is:

"Subject to any agreement between the partners ...."

In British Columbia, the 2009 version of the Partnership Act is similar to the Ontario statute. The entitlement to, and formula for a return of contribution, if any, is set out at §42 and §47:

"On the dissolution of a partnership, every partner is entitled, as against the other partners in the firm and all persons claiming through them in respect of their interests as partners, to have the property of the partnership applied in payment of the debts and liabilities of the firm, and to have the surplus assets after the payment applied in payment of what may be due to the partners respectively after deducting what may be due from them as partners to the firm.

"Subject to any agreement, in settling accounts between the partners after a dissolution of partnership, the following rules must be observed: (a) losses, including losses and deficiencies of capital, must be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits; (b) the assets of the firm, including the sums, if any, contributed by the partners to make up losses or deficiencies of capital, must be applied in the following manner and order: (1) in paying the debts and liabilities of the firm to persons who are not partners; (2) in paying to each partner rateably what is due from the firm to that partner for advances as distinguished from capital; (3) in paying to each partner rateably what is due from the firm to that partner in respect of capital; (4) the ultimate residue, if any, must be divided among the partners in the proportion in which profits are divisible."

In some cases, a partnership dispute is sent to the court for assistance and the judicial response is to kill the partnership; to dissolve it. A partnership requires reciprocal fiduciary duties by the partners towards the business and when bad faith infects a partnership, the Court usually consider it worthy only of active euthanasia. 

In Wych, a partnership was nuked when the court found that one of the partners had moved all of the partnership property without the prior consent or knowledge of the other partner.

In Red Burrito, one of the partners locked the others out of the business premises (a restaurant). Madam Justice D. Smith's decision (British Columbia Supreme Court), is rich in statements of the relevant law, as the Court dissolved the partnership.

In Brew, a veterinarian partnership was dissolved by the British Columbia court after one of the partners unequivocally announced that she would not be bound by the terms of the partnership agreement.

In Carlson,  Justice Vickers wrote:

" ... the objects for which this partnership was formed ... can no longer be attained. Accordingly, I conclude it is just and equitable that the partnership be dissolved."

Conclusions

Bringing a business partnership to a clean halt, or ousting a partner without destroying the partnership for the remaining partners, requires the knowledgeable and steady hand of a competent solicitor.

Partners seized with this difficult process will need to be alive to lawyers who by personal or commercial nature, accept litigation or antagonism as the preferred resolution of a partnership dissolution.

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