Dissolution of business

Dissolution of business

The formal requirements for dissolving a business depend on its underlying structure. It is wise to get specialist advice on dealing with the finalisation of a complex business structure.

Sole Trader

An individual conducting business as a sole trader is responsible for all the liabilities of the business, and if the business merely stops trading without dealing with the outstanding liabilities, it may have far-reaching consequences for the individual.

For example, simply closing the doors and moving out of leased premises is likely to result in a landlord pursuing the individual for unpaid rent for the balance of the term of the lease. Likewise, failing to pay outstanding creditors may also have far-reaching effects for the individual.

However, as long as all liabilities are met, a sole trader business is relatively easy to finalise, with no real formalities required. Pursuant to section 42 of the Business Names Registration Act 2011 (Cth), a business name can be cancelled on request, which will be effective within 28 days of lodgement.

Partnership

A partnership will come to an end in a number of ways, depending on how it is formed. If there is no formal partnership agreement, the Partnership Act 1891 (SA) sets out a number of ways that the partnership can end, including the death or insolvency of one partner, by notice by one of the partners or by an order of a Court of competent jurisdiction.  

The dissolution of a partnership does not mean that the business will be finalised. As with a sole trader, each partner is liable for debts incurred by the other members of the partnership.  Accordingly, a partnership should be properly and clearly dissolved as part of the end of the business. Once the debts are paid, and other formalities met, the remaining assets of the partnership may be divided between the partners in accordance with either the terms of the partnership agreement or S44 of the Partnership Act 1891 (SA).

Company

A business conducted by a company is more complex to finalise. A company continues to exist even if the business ceases to trade and may continue to incur debt.

A company that is solvent (that is, can pay all of its debts) may be wound up by the directors and shareholders and it is necessary for the directors to lodge a statutory declaration that the business is solvent when applying to ASIC to de-register the company. The process can be complex and requires specialist legal and accounting advice to complete unless the underlying structure is simple.

For further information see the ASIC website.

Dissolution of business  :  Last Revised: Tue Mar 22nd 2016
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