Deciding to dissolve an Ontario partnership is the easy part. Subject to what is in the written partnership agreement (if there is one), a notice of dissolution from any partner, a death, an insolvency or a court order ends the firm, yet the partners stay exposed for months afterwards. Old customers can still bind you, guarantees quietly lapse, and the public record keeps naming you as a partner. This guide covers the wind-up itself, and the steps that actually close the door behind you.
Dissolution Starts the Wind-Up, It Does Not Finish It
Ending the firm and finishing its business are two separate events, and people who dissolve an Ontario partnership routinely confuse them.
Section 38 of the Partnerships Act keeps the machinery running for one limited purpose:
After the dissolution of a partnership, the authority of each partner to bind the firm and the other rights and obligations of the partners continue despite the dissolution so far as is necessary to wind up the affairs of the partnership and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise …
Read the words “but not otherwise”. Your authority narrows to what winding up actually requires, such as collecting receivables, finishing jobs already underway and paying creditors, so a former partner who signs a brand-new contract is acting outside it. The same section adds one hard limit. The firm is never bound by the acts of a partner who has become insolvent.
Section 39 gives every partner the right to have the firm’s property applied to its debts before anyone takes a surplus, and it lets any partner apply to the court to wind up the business. Therefore, a partner who stonewalls the accounting is not blocking anything permanently.
Tell the World, or Old Customers Can Still Bind You
Here is the step almost everyone skips, and it is the one that generates later claims.
Section 36(1) is blunt about what silence costs:
Where a person deals with a firm after a change in its constitution, the person is entitled to treat all apparent members of the old firm as still being members of the firm until the person has notice of the change.
Notice works on two tracks, and they are not interchangeable. People who dealt with the firm before need to hear from you directly, whereas strangers are caught by an advertisement in The Ontario Gazette, which the Act says “shall be notice as to persons who had not dealings with the firm before the dissolution or change so advertised.”
So a letter to your customer list is not optional politeness. Without it, a supplier who has invoiced the firm for years may still treat a departed partner as good for the debt.
Notice does not erase old debts
Notice protects you going forward only. Under section 18, a retiring partner stays liable for debts the firm incurred before the retirement. That changes only if the creditors and the remaining partners agree to release the partner, either expressly or through their course of dealing.
The Act does soften the rule in two situations. Under section 36(3), the estate of a partner who dies or becomes insolvent is not liable for debts contracted afterwards. Neither is a retiring partner whom the other party never knew to be a partner.
A second route to the same liability
Section 36 is not the only way a former partner ends up on the hook, and the two routes are easy to confuse. Section 15 catches a person who lets themselves be represented as a partner, which is a different question from the apparent membership that section 36 addresses.
Courts take both seriously, and the argument can be worth a great deal of money. In 1062484 Ontario Inc. v. McEnery, 2021 ONCA 129, two companies seeking to recover money advanced through a lawyer who shared office space with an Ottawa firm tried to make the firm answer for his defaults. They said he was either a partner or held out as one.
The motion judge found he was neither. The section 15 claim failed because she did not accept that the lenders had relied on a belief that he was a partner. The Court of Appeal upheld that result, and the Supreme Court of Canada later refused leave to appeal.
Note what it cost to get there, though. Ending the claim took summary judgment motions, an appeal and a leave application.
The Gazette route is real, as laid out in Section 36(2), although few firms still use it. Ontario has published these notices for decades, and you can read genuine examples in the partnership dissolution section of the Gazette.
If a partner will not cooperate
Section 37 answers the obvious objection. On a dissolution or a partner’s retirement, any partner may publicly give notice of it, and may require the others to concur, for that purpose, in the necessary or proper acts that cannot be done without them.
Consequently, one uncooperative partner cannot leave the rest exposed. Put the request in writing, and act on it.
Who Gets Paid, and in What Order
Partners who dissolve an Ontario partnership consistently overestimate their own priority, and the statute is unsentimental about it.
Section 44 sets the default waterfall, which governs unless the partnership agreement says otherwise. Outside creditors come first, then partners who lent money to the firm, then partners repaying capital, and only then is anything left divided in the profit-sharing proportions.
Document whether your contribution went in as a loan or as capital, because advances rank ahead of capital in that sequence. Partners who never papered the difference argue about it later, and the ledger rarely settles it on its own.
Losses run the other way when you dissolve an Ontario partnership. They come out of profits first, then capital, and lastly out of the partners’ own pockets in the proportions in which they shared profits. Partners in a limited liability partnership get one narrow carve-out. None of them must pay a loss arising from a liability that section 10(2) shields them from, although they still share other losses in the usual way.
What Quietly Ends When You Dissolve an Ontario Partnership
Three things change automatically when you dissolve an Ontario partnership, and none of them announce themselves.
Continuing guarantees stop covering new business. Under section 19, a continuing guarantee given to or in respect of a firm is, absent agreement to the contrary, “revoked as to future transactions by any change in the constitution of the firm.” Liability already incurred survives, and your bank almost certainly drafted around the rule, although your suppliers may not have.
The registration stays on the register. Nothing in the Business Names Act forces you to cancel a business name when the firm ends; a registration simply runs its five-year term and expires. However, where the registered information changes, the registrant must file an amended registration within fifteen days. Because the partners register the firm name jointly, a departing partner whose name appears on that registration triggers an amended filing for the firm.
The fiscal period closes early. A partnership that stops operating partway through its year gets a short final period. Where the firm must file a partnership information return, the Canada Revenue Agency requires it no later than the earlier of ninety days after the partnership ended all business or activity and the date the return would otherwise have been due.
What to Do Next: When to Call a Lawyer
Work the sequence rather than the argument. Partners who dissolve an Ontario partnership badly usually did the right things in the wrong order.
Send written notice to every customer, supplier, lender and landlord who has dealt with the firm, and keep proof of delivery. Then consider the Gazette advertisement for everyone else, since direct notice does nothing against people who never dealt with you. Together those two steps defeat most later claims that a departed partner was still an apparent member of the firm.
Next, secure the records before goodwill runs out, since everyone who helped you dissolve the Ontario partnership scatters quickly. Bank statements, ledgers, client lists and tax filings decide the accounting, and they get harder to obtain once positions harden.
Then check every guarantee, lease and supply agreement for a clause that survives a change in the firm, because a dissolved Ontario partnership leaves those documents behind. In addition, update the business name registration if the partners listed on it have changed.
The deadline that runs against you
Finally, watch the clock. Subject to any agreement between the partners, section 43 treats what the continuing partners owe an outgoing partner as a debt accruing at the date of dissolution. That suggests the limitation clock may start running from dissolution rather than from whenever the accounting is finished, although the discoverability rule in the Limitations Act, 2002 will govern the final answer. Discoverability then does the rest, and it is unforgiving. In Davies v. Davies Smith Developments Partnership, 2018 ONCA 550, a retired partner’s agreement with his former partners called for equity and profit-share payments running to June 2008. The money never arrived, and he sued in 2012.
The Court of Appeal dismissed his appeal. His claim was discovered when the scheduled payments went unpaid, and an ongoing dispute over the exact figure postponed nothing. That is the trap waiting for anyone who waits politely for a final accounting.
A partnership that ends cleanly costs a fraction of one that ends loudly. If you are preparing to dissolve a partnership in Ontario, or a partner has just given notice, contact Cowan before the first letter goes out.
