Ideally, partnerships would only dissolve when the partners decide to close the business. However, South Carolina partnerships may dissolve in a number of other ways, apart from mutual agreement of the partners, and it is important for that partnerships are aware of such circumstances to avoid premature closure. Death or incapacity of a partner, unlawful activities or a court order may trigger dissolution.
South Carolina law provides that partnerships may be dissolved at any time by mutual agreement of the partners, or at a time specified in the partnership agreement. A partnership agreement is not a legal requirement in the state, but many partnerships will draft one to outline how the partnership will be managed, how profits are distributed, and when the partnership will be dissolved. The agreement may specify a certain date for dissolution, or a specific event. For example, you may form a partnership for a single real estate sale, and specify in the agreement that the partnership will automatically dissolve once the sale is complete.
Death or Bankruptcy
Unless otherwise specified in the agreement, a partnership will dissolve when a partner dies or files for bankruptcy. When winding up the affairs of the partnership, the remaining partners will generally be liable for any debts that the absent partner would have been responsible for. In a partnership, all the owners are equally personally responsible for the debts of the business, unless the agreement provides otherwise.
Unlawful Activities and Court Orders
South Carolina law provides that if a partnership was organized for unlawful activities, it will automatically dissolve. Additionally, in certain situations, any partner may seek a court order to dissolve the partnership. A court will dissolve a partnership when a partner has been shown to be of unsound way or is otherwise incapable of conducting his partnership duties, if a partner willfully breaches the partnership agreement, or if the business can only be carried on at a loss. Partners may also request that the court dissolve the partnership with one partner, and the remaining partners may continue to do business without the removed partner.
Effects of Dissolution
Once a partnership has been properly dissolved, the partners may no longer act on behalf of the business, apart from winding up affairs. Winding up refers to the process of distributing assets of the partnership after dissolution. South Carolina law specifies how assets are distributed. The partnership must first pay the non-partner creditors of the business, and then partners may be paid, according to the partnership agreement. If the partnership does not have enough assets to cover the debts, then the partners are responsible for making personal contributions to satisfy the business' liabilities, in most cases.