Definition and Dissolution of a Partnership

July 5, 2018 | Rachel Haack | Regina

A partnership is “the relation that subsists between persons carrying on a business in common with a view of profit” (The Partnership Act (Saskatchewan), RSS 1978, c P-3, section 3(1)). Partnerships can be formed in relation to any trade, occupation, profession or business. However, unlike corporations formed pursuant to The Business Corporations Act (Saskatchewan), RSS 1978, c B-10, a partnership is not a legal entity distinct from the partners of whom it is composed.

Partnerships may be created with little or no formalities. However, once formed, a partnership may be challenging to dissolve. Often, partners have close interconnections in relation to the business ventures being carried on by the partnership.

A partnership agreement can assist the partners in determining their respective roles and obligations. The partnership agreement will often be the guiding document upon dissolution of the partnership. It can address, among other things, the number of partners, the assets of the partnership, and the manner of dissolution of the partnership.

If the parties do not have a partnership agreement after forming their partnership, then the partnership will be governed by The Partnership Act. Under The Partnership Act, a partnership can be dissolved in four ways.

First, if the partnership was a fixed-term partnership, it will be automatically dissolved by the expiration of the partnership term (The Partnership Act, section 34(a)). For example, partnership agreements can state that a partnership will dissolve automatically after one year.

Second, if the partnership was entered into for a single undertaking, the partnership will be dissolved when that undertaking is completed (The Partnership Act, section 34(b)). For example, if a partnership was formed with the limited goal of building and selling a building, the partnership will be dissolved once it is completed and sold.

Third, where a partnership was entered into for an undefined amount of time, then the partnership can be dissolved by any one partner providing notice to all other partners of their intention to dissolve the partnership. In this circumstance, it is critical that notice of the dissolution be served upon all other partners in order to be effective.

Lastly, the Court of Queen’s Bench for Saskatchewan can order the dissolution of a partnership pursuant to section 37 of The Partnership Act in the following circumstances:

(a) when a partner is shown to the satisfaction of the court to permanently lack capacity, in which case the application may be made as well on behalf of that partner by his guardian or next friend or person having title to intervene as by any other partner;

(b) when a partner other than the partner suing becomes in any other way permanently incapable of performing his part of the partnership contract;

(c) when a partner other than the partner suing has been guilty of conduct which in the opinion of the court, regard being had to the nature of the business, is calculated to affect prejudicially the carrying on of the business;

(d) when a partner, other than the partner suing, wilfully or persistently commits a breach of the partnership agreement or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with him;

(e) when the business of the partnership can only be carried on at a loss;

(f) in any case circumstances have arisen that in the opinion of the court render it just and equitable that the partnership be dissolved.