How are assets split when a partnership dissolves?
External creditors are paid first from partnership assets. Whatever remains is used to repay partner loans and return each partner's capital contribution. Any surplus after that is divided according to the profit-sharing ratio, and any shortfall is shared as a loss in the same ratio. A partnership agreement can set a different order.
What is a capital account?
A capital account tracks what each partner has put into and taken out of the business. It rises with contributions and the partner's share of profits, and falls with draws and their share of losses. On dissolution, each partner is generally entitled to the balance of their capital account before profits are split.
What happens to unpaid draws on dissolution?
Draws are advance withdrawals of expected profit. If a partner has drawn more than their share of actual profit, the excess is deducted from their final distribution or must be repaid to the partnership. This calculator subtracts each partner's outstanding draws from their share.
Can a partner end up owing money when a partnership closes?
Yes. If the partnership's liabilities and draws exceed its assets and capital, partners must contribute cash to cover their share of the deficit. In a general partnership, partners have unlimited liability for the firm's debts, so a negative result means a real payment obligation.
Does the partnership agreement control the split?
Almost always. A written partnership agreement typically defines profit shares, capital treatment, valuation of goodwill and the winding-up procedure, and it overrides the statutory default rules. Where no agreement exists, the provincial Partnership Act or the Uniform Partnership Act supplies the defaults this tool models.