Business Partner Won't Engage? Your Exit Options Under the Partnership Act 1891 (Qld)

Key Takeaways

• A partnership exists under s 5 of the Partnership Act 1891 (Qld) wherever people carry on a business in common with a view of profit. No document is needed and once it exists every partner is jointly liable for the firm's debts incurred while they are a partner.
• Without a written agreement, s 27 supplies the rules: equal shares in capital and profits, equal contribution to losses, no salary for any partner and management open to all. Ordinary matters go by majority, but a new partner or a change in the nature of the business needs every partner. Anything agreed by email or by years of conduct can displace those defaults.
• Nobody can be expelled from a partnership without an express power in the agreement (s 28). Instead, any partner can end a partnership at will by notice (ss 29 and 35) and the court can dissolve one on the grounds in s 38.
• A notice dissolves the partnership for everyone and leads to a winding up under ss 41, 42 and 47 unless the partners agree a buyout or a sale. A departing partner stays liable for debts incurred before leaving unless released by an agreement with the creditor and the continuing partners (s 20) and, until those dealing with the firm have notice of the change, for later ones (s 39). An indemnity from the partner who stays does not bind the bank, the landlord or a supplier.
• In a regulated business much of what the partners think they are dividing is something the dissolution account cannot simply hand out: an agent's licence, money held in trust for clients, property management appointments, patient records and a contractor licence that may depend on one partner being its qualified technical person. Their own Acts and regulators decide what happens to each of them.

1. 1.Are we actually in a partnership and why does it matter?
2. 2.What rules apply when there is no written partnership agreement?
3. 3.Can we force a partner out?
4. 4.What happens to the assets, the name, the lease and the debts?
5. 5.What if the business runs on a licence, client money or patient records?
6. 6.What are the realistic ways out?
7. 7.What should I do now?
8. 8.Where your own facts take over
9. 9.Frequently Asked Questions

When a partner stops turning up, stops paying in or starts talking about leaving, the others need to know what they can do. For a Queensland partnership with no written agreement the answer sits in the Partnership Act 1891 (Qld) (Partnership Act). Nobody can be expelled without an express power, any partner can end a partnership at will by notice and what follows is a winding up unless the partners agree something better. Jamie Nuich of Astris Law in Brisbane explains below what each route leaves you holding.

Are we actually in a partnership and why does it matter?

Under s 5 a partnership is the relation between persons carrying on a business in common with a view of profit. Two tradespeople who quote and invoice together and share the profits are very likely partners whatever they call themselves.

The label matters because every partner is liable jointly for the firm's debts incurred while a partner (s 12) and property brought into the firm or acquired for its business is partnership property, to be held and applied only for the partnership (s 23). Whether a vehicle or a tool one partner paid for became partnership property or was only used in the business is a question of fact. A company is governed by different rules and a joint venture may or may not be a partnership depending on how it is set up and run.

What rules apply when there is no written partnership agreement?

Section 27 fills the gap, subject to any agreement, express or implied, between the partners; years of unequal drawings or an understanding reached by email can displace the defaults.

With two partners there is no majority, so every ordinary disagreement is a deadlock the Partnership Act does not break.

Can we force a partner out?

Under s 28 a majority cannot expel a partner unless a power to do so has been conferred by express agreement, so without an expulsion clause the quiet partner cannot be removed.

Where no fixed term was agreed, the Partnership Act gives dissolution instead. Any partner may end a partnership at will by notice to all the others (s 29), effective from the date the notice names or, if none, from when it is communicated (s 35). Either of you can dissolve the whole partnership that way, but neither can take the business by that route.

Where a partner will neither go nor engage, s 38 lets the court dissolve the partnership on grounds that include permanent incapacity, conduct calculated to prejudice the carrying on of the business, wilful or persistent breach, a business that can only run at a loss and the just and equitable ground. That route takes time and ordinarily ends in dissolution and a winding up, not a transfer of the business to you.

What happens to the assets, the name, the lease and the debts?

After dissolution each partner's authority to bind the firm continues only so far as is needed to wind up (s 41). Every partner may insist that partnership property go first to the firm's debts and the surplus to the partners and may ask the court to wind up the firm (s 42). Section 47 sets the final account: losses come out of profits, then capital, then from the partners personally in profit-sharing proportions; what remains after creditors, partner advances and capital are repaid is divided as profits were.

A retiring partner stays liable for debts incurred before retirement and is released from them only by an agreement with the creditor and the continuing partners, express or inferred from how the creditor deals with the new firm (s 20). An indemnity from the partner who stays gives the one who left a claim against the other, not a release from the bank or the supplier. Anyone dealing with the firm afterwards may treat the old partners as members until they have notice of the change (s 39).

The business name on the Australian Securities and Investments Commission register is transferred where one person or a company carries on or updated where the partnership continues with different partners. The Australian Taxation Office treats the firm as continuing, with the same Australian Business Number and tax file number, only if its conditions are met, one being that there is no period with only one partner. In a firm of two that condition fails the day one partner leaves unless another joins at once and the partner who carries on needs new registrations.

A lease granted to two partners binds both of them as tenant for the whole term and its words, not the Partnership Act, decide whether one can drop out without the landlord's consent; where consent is needed, the landlord must not withhold it unreasonably (Property Law Act 2023 (Qld) s 142), but consent on its own does not release the partner who leaves. The bank facility, the equipment finance and any personal guarantee are read the same way and no agreement between the partners can release either of them from those contracts.

What if the business runs on a licence, client money or patient records?

In a regulated business much of what the partners think they are dividing is held by one of them personally, held by the firm for others or controlled by a regulator and a split agreed between the partners does not move it.

Two real estate agents who each hold their own licence under the Property Occupations Act 2014 (Qld) (POA) and trade in partnership may agree to split "the rent roll" and the money held in trust. The money in trust is client money held under the Agents Financial Administration Act 2014 (Qld) and the rent roll is a set of management appointments whose assignment is governed by s 113 of the POA, not by the dissolution account. A partner who pays the other out for the rent roll through the dissolution account can end up paying for appointments that have not moved. The Office of Fair Trading is the regulator under both Acts.

In a medical or allied health partnership, medical defence organisation guidance treats patient records as the practice's rather than the individual practitioner's unless something else was arranged, while accepting that a small practice with nothing in writing is less clear, so the records may well be partnership property. The s 47 account can put a value on them, but what either partner may do with them is governed by the Australian Privacy Principles (APPs) in the Privacy Act 1988 (Cth), which bind a business that provides a health service and holds health information whatever its turnover (s 6D(4)(b)). APP 6 controls use and disclosure and APP 12 gives each patient a right of access, so whichever partner ends up holding the records answers for them to every patient who asks and to the Office of the Australian Information Commissioner.

An electrical contractor licence under the Electrical Safety Act 2002 (Qld) depends on a qualified technical person (QTP), who must be an employee, a member of the partnership or an executive officer. Where the partner leaving is the firm's only QTP, the Electrical Safety Office says the licence is suspended and then cancelled automatically if no QTP is endorsed on it. A buyout or a dissolution notice can set that running before anyone has settled who replaces them.

Those rules and the name on each document, not the partners' agreement alone, decide who ends up with the appointments, the records or a working licence.

What are the realistic ways out?

Most partners aim at one of three outcomes. In a negotiated buyout one side buys the other's share at an agreed value and takes over the debts, though, as above, an indemnity does not release the partner who leaves. In a dissolution and sale the business or its assets are sold, the proceeds are divided in the Partnership Act's order and both leave. The third is conversion into a company under a shareholders agreement, which keeps both partners in but settles exits, valuation and deadlock in advance. That restructure has its own tax and duty questions and because the company is a different person from the partners, each licence, registration and approval has to be looked at again. Where a written agreement has been broken, see our guide to a business partner breaching a contract.

What should I do now?

1. Take on no new joint finance, leases or supply contracts beyond ordinary trading. Check the bank mandate.
2. Copy the accounts, bank statements, contracts, lease, licences and registrations without locking anyone out; s 27 gives every partner access to the books.
3. Look for the agreement you may already have in emails, the accountant's file or the original bank application.
4. Hold off writing to the other partner about the dispute until you know what you want out of it, because what you put in writing now can be used later. A dissolution notice under ss 29 and 35 is not a holding letter; it ends the partnership.

Where your own facts take over

The right course for your partnership turns on whether any agreement, written or implied, fixes a term, a notice period or an expulsion power; whether you want the business or the exit; whether the other partner's behaviour is a s 38 case or a falling out; how the property, the debts, the lease and the guarantees are held; and whether the business depends on a licence, client money or a regulator's approval. None of those questions can be weighed without the agreement, the accounts and the registrations open on the desk. Before a notice, an offer or a letter to a regulator goes out, talk the partnership through with Jamie Nuich at Astris Law on (07) 3519 5616. The first question will be what you want to keep.

Frequently Asked Questions

Can I just leave a business partnership in Queensland?

If no fixed term was agreed, notice to all the other partners ends the partnership, for everyone and not only for you. You remain liable for debts incurred before you left and for later debts to anyone dealing with the firm who had no notice that you had left.

Can my business partner expel me?

Your partner cannot expel you without an express power in a partnership agreement (s 28).

Am I liable for debts my partner ran up?

A debt counts as the firm's if your partner incurred it carrying on the firm's business in the usual way or with the partners' authority. Debts of that kind incurred while you were a partner are yours jointly with the others and the creditor is not confined to your share.

This article is for general information purposes only and does not constitute legal advice and should not be relied on as such. While we take reasonable care to ensure the accuracy of the information provided, we make no representations or warranties as to its completeness, currency or reliability. We accept no liability for any loss or damage arising directly or indirectly from the use of or reliance on, this website's content. You should always seek professional advice tailored to your specific circumstances before acting on any information in this article. Liability limited by a scheme approved under Professional Standards Legislation.

Astris Law is not a registered tax agent and does not provide tax advice. References to tax law in this article describe the legal framework only. For tax advice specific to your circumstances, consult your registered tax agent or accountant.