What Happens If My Business Partner and I Split Up?

Before you start: which kind of “partner” split is this?

This article covers unincorporated general partnerships, the kind formed when two or more people go into business together without incorporating, governed by the Ontario Partnerships Act or the Alberta Partnership Act. If your business is instead a corporation with two shareholders, a different body of law applies (shareholder agreements, oppression remedies), and the steps below won’t fit your situation.

If you do have a general partnership, here’s what happens when it ends, step by step.

Step 1: Check your partnership agreement first

Everything below is a default rule that applies only when the partners haven’t agreed otherwise. In Ontario, absent an agreement, partners “are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses” (Partnerships Act, RSO 1990, c P.5, s 24(1) para 1). Alberta’s Partnership Act says the same thing in almost identical words (RSA 2000, c P-3, s 28(a)). If you signed a partnership agreement that sets out different sharing ratios, buyout terms, or an exit process, that agreement generally governs instead of the statutory default.

Step 2: Give notice to dissolve, if there’s no fixed term

If your partnership was set up for an indefinite period (no end date and no fixed project), either partner can end it unilaterally. In Ontario, a partnership “entered into for an undefined time” is dissolved “by a partner giving notice to the other or others of his or her intention to dissolve the partnership,” effective on the date named in the notice or when it’s communicated (Partnerships Act, RSO 1990, c P.5, s 32(c)). Alberta’s Act works the same way (RSA 2000, c P-3, s 36(1)(c)). Neither partner needs the other’s consent to trigger this.

Where partners can’t agree and one side won’t cooperate, Ontario’s Act also lets a court dissolve the partnership “whenever…circumstances have arisen that in the opinion of the court render it just and equitable that the partnership be dissolved” (RSO 1990, c P.5, s 35(1)(f)). This research did not confirm whether Alberta’s Act has an identically worded ground; readers in Alberta facing an uncooperative partner should get that point confirmed directly.

Step 3: Understand what authority survives after dissolution

Dissolution doesn’t switch everything off instantly. In both provinces, each partner’s authority to bind the firm, and the partners’ mutual rights and obligations, continue after dissolution, but only as far as needed to wind up existing affairs and finish transactions that were already underway (Ontario: RSO 1990, c P.5, s 38; Alberta: RSA 2000, c P-3, s 42). That means a former partner can still be bound by, or benefit from, work the firm had already started before the split, but not by brand-new business either partner takes on afterward.

Step 4: Pay debts and divide assets in the correct order

When the partnership’s assets are actually distributed, both provinces impose the same order of priority. In Ontario, the firm’s assets first go toward paying “the debts and liabilities of the firm to persons who are not partners therein” (RSO 1990, c P.5, s 44 para 2(a)), before any partner is repaid for capital or advances. Alberta’s Act imposes the identical priority: outside creditors are paid before partners see anything (RSA 2000, c P-3, s 48(b)(i)).

Only after outside debts and partner capital contributions are settled does anything remain to divide between the partners themselves. In Ontario, that “ultimate residue, if any, is to be divided among the partners in the proportion in which profits are divisible” (RSO 1990, c P.5, s 44 para 3), meaning whatever sharing ratio applied to profits during the partnership also applies to any final leftover surplus.

Step 5: Cancel your registered business name

If the partnership operated under a registered business name, that registration doesn’t disappear automatically just because the partners split up.

Confirm current fees directly with Ontario’s Business Registry or an Alberta service provider before budgeting for the cancellation, since exact dollar figures weren’t available in the sources checked for this article.

Step 6: Close out CRA accounts and file the final return

Splitting up a partnership has federal tax consequences that apply the same way whether you’re in Ontario, Alberta, or elsewhere in Canada, because the CRA administers these rules nationally (though it looks to provincial law to decide whether a partnership existed in the first place). Three things typically need to happen:

1. File a final T5013. The partnership’s T5013 Partnership Information Return must be marked as the final return “up to dissolution.”
2. Sort out the GST/HST account and Business Number. What happens to these “depends on the type of partnership agreement.” If one former partner simply continues the business alone as a sole proprietorship, the CRA cancels the original partnership’s GST/HST registration.
3. Close remaining CRA program accounts. Before the Business Number and any associated accounts (GST/HST, payroll, corporate tax) can be fully closed, the CRA requires “certain forms” to be filed first.

Because the GST/HST and BN outcome depends on the partnership agreement’s terms, it’s worth confirming with the CRA directly which forms apply to your specific situation before treating the accounts as closed.