Partnership dissolution refers to the ending of a partnership, which can occur due to various reasons such as the admission of a new partner, withdrawal of an existing partner, death, or bankruptcy. When a partnership is dissolved, a new partnership may be formed and a new set of articles of partnership may be prepared.
One way that a new partner can be admitted to a partnership is by purchasing the interest of one or more existing partners. This is a personal transaction between the individual partners, and the price paid is negotiated between them. From an accounting standpoint, the only entry needed in the records of the partnership is the transfer of the proper amounts of owner's equity from the capital account of the selling partner to the capital account of the incoming partner. The assets and capital of the partnership are not affected by this transaction.
Another way that a new partner can be admitted is by investing assets into the partnership. This increases both the assets and capital of the partnership. The investment may be in the form of cash, equipment, or other assets, and the market value of the assets contributed is credited to the capital account of the new partner. If the assets of the partnership are not fairly valued at their current market value, they should be adjusted to reflect this value. The income-sharing ratio of the new partner is determined at the time of their admission.
When an existing partner withdraws from the partnership, the partnership is dissolved and a new partnership may be formed. The withdrawal of a partner may be due to various reasons such as retirement, death, or bankruptcy. The outgoing partner's capital account is closed and any remaining balance is distributed to them. If the outgoing partner is owed more than their capital account balance, the partnership may need to liquidate some of its assets to pay off the debt. If the outgoing partner is owed less than their capital account balance, the remaining balance is transferred to the remaining partners in proportion to their ownership interests.
In the event of the death of a partner, the partnership is dissolved and a new partnership may be formed. The deceased partner's share of the partnership's assets and profits is distributed to their estate or to their designated beneficiaries.
If a partner files for bankruptcy, the partnership is dissolved and a new partnership may be formed. The bankrupt partner's share of the partnership's assets and profits is transferred to their bankruptcy estate. The partnership may also be required to pay any debts owed by the bankrupt partner to the bankruptcy estate.