Preparing your partnership
No partnership lasts forever - although some, especially those that resemble 'Grandad's axe' (two new heads, three new handles) do last for a very long time.
However, there may come a day when the end of your partnership is in sight. This may be because:
- the business is being incorporated
- the business is no longer profitable
- the majority of the partners all wish to retire
- the business is being sold
- the partners have 'irreconcilable differences of opinion' over the way the business is to go forward, or perhaps they simply no longer want to work together.
There are many reasons why a partnership might be coming to an end, and care needs to be taken if a tax 'penalty' is to be avoided. For example, on the sale of a partnership business to a plc, the best strategy might be to incorporate the business, then take shares or loan notes in exchange for your shares in the business. As well as reducing the cashflow impact of the sale on the new owners you may, with care, be able to shelter or defer substantial capital gains. This might not be a strategy suitable for all sales, but we can advise you regarding your own particular circumstances.
No-one starting a business will naturally plan for its end, but we can help you by discussing the partnership agreement. Just as it is important to agree who puts what into the new partnership and what profit share they will take, so it is important to set out in your partnership agreement exactly what each party will be entitled to when they leave, or when the partnership comes to an end.
Will a departing partner be entitled to only his or her share of the original capital, to a share in the tangible assets and goodwill, or to an annuity? This should all be set out in your partnership agreement - as should the procedure in the event of a dispute.It is important that a structure is created for the management of your partnership, and for a successful exit from it, whatever the future may bring.