Partnership Dissolution Basics

Dissolution marks the end of a partnership but not necessarily its activities. It's a legal process that changes the relationship between partners but allows for the settling of the partnership's obligations.

Multiple events can trigger dissolution: a partner's death or bankruptcy, expiration of partnership term, completion of the venture, mutual agreement, or court order due to dysfunction or incapacity.

Once dissolution is triggered, partners must cease new business activities. However, they may complete transactions started before dissolution, and liquidate partnership assets to satisfy creditors and partners.

Upon dissolution, assets are distributed in a specific order: first to creditors, including partners who are creditors, then to partners for capital contributions, and finally, any surplus is shared.

Partners may remain liable for debts and obligations of the partnership after dissolution. These liabilities can continue until the partnership's affairs have been completely wound up and terminated.

In some cases, partnerships may continue post-dissolution if remaining partners agree to assume the business, often resulting in a new partnership agreement and structure.

Dissolution doesn't absolve the requirement to file final tax returns. Partners must report their share of income, gain, loss, deduction, or credit until the partnership is completely wound up.